USD sees risk of negative data surprises in the coming weeks – TDS

FXStreet (Barcelona) - DXY’s tightening response to US data, overbought Dollar and the expected negative surprises in the coming weeks from US data, signals that the picture for USD would remain soft, according to FX Strategists at TD Securities.

Key Quotes

“It was a very active session yesterday with the USD weakening across the board and especially versus the CAD. But just because the data calendar is light today (housing starts and jobless claims) does not mean that it will be a benign day for the USD.”

“We think there is more to weakness to come in the coming weeks as concern that a sluggish first quarter for the US economy will spill over into Q2 is growing.”

“The USD is overbought and over-loved, making it vulnerable to violent shakeouts on negative data surprises. Indeed, short-term correlation studies indicate that the relationship between DXY and data surprises has tightened in recent weeks. As such, every data release could become magnified.”

“We may see a bounce into this morning’s US housing starts report which is expected to show a solid rebound to 985k (market: 1040k) in March, following an abysmal drop to 897k in February but then focus will then shift to the Fed’s Lockhart (voter) who will be speaking on the economic outlook at 13:00ET.”

“Nonetheless, we think the risk of negative data surprises, at least in the coming weeks, is non-trivial as the US economy adjusts to a stronger dollar. When taken in tandem with the seasonal tendency for the USD to underperform in April, we think the path of least resistance is lower for the USD.”