USD: Rally looking a bit stretched – ING

The US Dollar (USD) and oil went opposite ways yesterday. The greenback was strong across the board, shrugging off the drop in crude triggered by some media reports that Israel does not plan to hit Iran’s oil and nuclear facilities. That is probably the result of some disappointment among investors about the details of China’s stimulus measures announced on Saturday, ING’s FX strategist Francesco Pesole notes.

USD to reconnect with the softer oil story

“As US markets reopen today after a long weekend, the dollar might reconnect with the softer oil story. Incidentally, the rates picture can hardly turn much more supportive than this for USD given markets are now pricing in only 44bp of Fed easing by year-end, and data has not improved enough to lead markets to push that pricing to just 25bp.”

“Should we see more independent dollar outperformance, we could conclude that is due to some positioning ahead of the US election in three weeks from now. Asset markets seem to be pricing in a win by Kamala Harris, which is seen as the least disruptive outcome, and given how close the candidates are in the swing States polls, some defensive positioning can see dollar inflows into the vote.”

“On the data side, things are quite quiet in the US. The Empire manufacturing index is the only noteworthy release today, and markets will probably be more interested to hear from FOMC member Mary Daly, who is a neutral figure in the committee and may offer a good sense of where the consensus sits after the higher-than-expected jobs and inflation numbers.”