USD bulls hanging on

Sentiment towards the USD remains positive, though positions have been significantly reduced and clients are now more selective about which currencies they are selling versus the USD. Improved US data over the past month has led to renewed conviction that the FOMC will start raising rates in September, according to Standard Chartered. At the same time, the USD has recovered from its 7% correction and clients have started to rebuild USD longs. The favoured USD longs in G10 are against the Australian dollar (AUD) and New Zealand dollar (NZD). 

For the euro (EUR), the recent rally back above 1.10 has caused a reduction of positions. Many clients are positive on USD versus Japanese yen (JPY), but agreed with our decision to take tactical profits on long USD-JPY on 3 June ahead of the non-farm payrolls release, says Standard Chartered.

USD sentiment versus EM currencies is equally bullish, and most clients have a balanced mix of currency shorts in Latam, EMEA and Asia ex-Japan (AXJ). Despite negative carry in many of these positions, clients feel that increased rates volatility will erode the value proposition of owning EM FX purely for carry. Popular shorts include Brazil real (BRL), Turkish lira (TRY), Korean won (KRW), Indonesian rupiah (IDR) and Singapore dollar (SGD). 

Additionally, many clients are focused on the continued weakening of AXJ economic data despite repeated interest rate cuts in the region and improving US data, added Standard Chartered. Many attribute this to ongoing weakness in China, but this is an area of ongoing exploration.