FX Daily: The dollar decline takes a breather

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USD: Consolidation sets in
After suffering its largest monthly fall in three years, the start of August sees the dollar entering a period of consolidation. However, the factors that have seen DXY fall 10% from its spike high in March are still in place and we expect a ‘sell the rally’ mentality to develop through August. As we discuss in the G10 FX Week Ahead, the US story this week will primarily be about jobs and benefits.

On the former, our team is slightly below consensus for the July ADP & NFP figures (& looks for a net jobs decline in August) adding weight to the view that the US second wave is generating some independent dollar weakness. At the same time, the market will be focusing on the Phase IV stimulus package – now that the supplemental employment insurance has expired. Delays here will not help the dollar. Looking at seasonality trends, August seems to mark a more difficult month for US equities and risk currencies in general – which could prompt some profit taking for a market generally positioned short dollars. Yet it is a long three months until the US Presidential election and we suspect that DXY corrections may struggle to beat the 94.50 area.

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Ing.com

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