USD retains soft undertone on tariff worries - Scotiabank

The US Dollar (USD) is consolidating last week's heavy losses but the underlying mood across the FX market remains bearish on the USD outlook as investors continue to focus on the negative implications of President Trump's economic agenda, Scotiabank's Chief FX Strategist Shaun Osborne notes. 

USD remains soft and prone to more losses

"Growth concerns are rising, with the president underscoring the uncertain outlook ahead at the weekend, noting that the US economy is facing "a period of transition". A look across markets this morning shows EM stocks and FX underperforming, with soft equity sentiment spilling over into European equities and US futures; E-minis are down 1% or so at writing. Bonds are finding a haven bid amid growth worries, with US Treasurys leading gains across G10 markets (10Y yields down 6bps on the day) on slowdown concerns." 

"The JPY is taking advantage of lower US yields to retest USD support at 147; USD losses here risk extending to 144. The EUR retains a firm undertone but is trading a little below Friday's peak. USD weakness looks poised to extend as sentiment continues to weaken. CFTC data Friday showed a further slide in aggregate USD long positioning while risk reversal pricing reflects a sharp fall in the demand for Bloomberg dollar index calls versus puts, reflecting the clear turn in the USD mood over the past week especially." 

"Technically, the DXY looks prone to another 2-4% decline in the coming weeks. It's a quiet start to the week on the data front. The NY Fed's inflation expectations data will generate some interest, given the FOMC's focus on the issue lately. CPI and PPI data later this week plus the U. Michigan Sentiment data Friday are the key releases over the next few days."