TD say the U.S. dollar is expected to maintain a strong performance through the first half of the year, supported by a favorable macroeconomic backdrop.
The bank’s quantitative and macroeconomic framework remains bullish on the dollar relative to G10 currencies, even as short-term positioning and valuations appear stretched. The analysts say that their outlook is driven by a shift in market fundamentals, where growth and inflation momentum increasingly favour the USD.
Additionally, the carry advantage further bolsters the currency’s appeal. Further reinforcing the view, their global regime indicator continues to signal a bullish USD environment, reflecting economic deceleration in other major economies.
Given these factors, TD anticipate the U.S. Dollar Index (DXY) to retest its 2022 highs, suggesting a core long positioning against currencies such as the euro (EUR), Canadian dollar (CAD), British pound (GBP), Australian dollar (AUD), South Korean won (KRW), and Chinese yuan (CNH).
Note that final sentence above, TD don’t mention JPY. A BoJ rate hike next week, if it comes, would be some way to indicating a top is in for USD/JPY.
Indeed, TD add:
- a near-term pullback in USD offers good entry points to go long
- that they like longs in the USD or JPY
