USD: Some positioning concerns remain - ING

Data from CFTC on speculative positioning show net US Dollar (USD) longs versus the rest of G10 rising to the highest since July until last Tuesday. In open interest terms, that is 12%, according to our calculations. That is a quite high figure, just above the 1-standard-deviation upper bound, however it is still well below April's 24% peak. Long USD positions likely grew further throughout last week, but CFTC figures probably fail to capture the depth of the shift to a structural bullish stance on the dollar after Donald Trump's election. Our perception remains that market positioning is quite stretched on dollar longs, and the greenback remains at risk of some technical correction in the near term, ING's FX analysts Francesco Pesole notes.

DXY to find support around 106.0

"At the same time, the macro story hasn't really offered any reason for second thoughts on the dollar rally. Inflation data has been hotter than the Federal Reserve's target would tolerate, and Chair Jerome Powell added a layer of caution on future easing in a speech last week. With very little extra information on the US economy being added this week, the market-implied policy divergence between the Fed and most other G10 central banks could mean that any positioning-led correction will be short lived."

"Ultimately, our economists' call is that the Fed will cut in December. Markets are pricing in 15bp, so there is room for a dovish repricing to hit the dollar. However, that repricing may not happen before jobs data are released in 18 days. That is a relatively long period for markets, and one where - net of any positioning-related wobble - the long dollar 'Trump trade' may remain the only clear-cut directional call in FX. We suspect DXY will still find support around 106.0 in case of a correction, and there is a tangible possibility it will be trading above 107.0 by Thanksgiving."

"This week, expect market focus to remain on Trump's cabinet nominees, in particular when it comes to the Treasury. The only potentially market moving data releases aside from jobless claims will be the leading index, which has however had very limited predicting ability for the direction of the economy. We'll also be looking out for S&P Global PMIs, which are expected to show more of the same for the US: weak manufacturing being more than offset by strong services. There are a few Fed speakers watch too, starting today with Chicago Fed President Austan Goolsbee, who is considered a dovish-leaning member."