USD: Positioning Induced USD Rally May Result In A Full Narrative Shift – TD

The US dollar is in the midst of a rally. What is the forecast for the currency?

Here is their view, courtesy of eFXdata:

TD Research discusses the USD outlook and flags a scope for the recent positioning-induced rally to extend further over the coming weeks.

“Our views and trading themes rest on a rotation from the single liquidity meta-theme to a shift in the regional growth variations. The result is a positioning induced USD rally, especially as relative growth signals point to a 3% USD discount. It’s too early to tell, but it may result in a full narrative shift, depending on how the COVID curves and the vaccine rollouts evolve,” TD notes.

In other words, we likely see USD bounce through a transition away from the liquidity-based narrative into the evolving growth divergence theme. Worse, a risk meltdown inspires a bounceback in safe havens like the USD or JPY…Our broad USD positioning index shows USD shorts at new cycle lows, recently advancing past the levels seen in 2017/2018. If things turn, the wave will crash fast,‘ TD adds.

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