Testing recent USD momentum, but still bullish

Disappointing US data and a more dovish Fed have been testing the bullish USD view in recent months and that theme is unlikely to change this week as our forecasts for US data releases are mixed relative to consensus. 

However, foreign currencies are always a relative price and the US remains the economy most capable of generating inflation and the closest to rate hikes, notes Barclays Research. 

"Indeed, US core inflation is substantially higher than its major economy peers, capacity pressures in the labour market are building and we continue to attribute Q1 weakness to transitory/technical factors, leading to a strong rebound in Q2. Last week's CPI inflation report confirmed this view with core CPI increasing by 1.8% y/y (consensus: 1.7% y/y)."

As a result, we retain our view of USD outperformance this year and recommend using any weakness to initiate long USD positions against the EUR, particularly in the context of continued Greek uncertainty.