TD Securities outlines its strategic perspective on the USD's trajectory, recommending fading the recent rallies of EUR, GBP, CAD, and CHF against the USD due to a divergence in inflation and growth expectations between the US and G10 countries.
Key Points:
- Short-Term Outlook: In the immediate weeks ahead, short-term factors such as positioning and historical fair value (HFFV) indicate potential USD downside.
- Medium-Term Bullishness on USD: Over the next 3-6 months, TD foresees strengthening USD as inflation divergence between the US and G10 becomes more pronounced, despite global growth starting to show signs of convergence.
- Growth and Inflation Dynamics: While global growth revisions are showing convergence, inflation in the US remains distinctively higher compared to G10, suggesting less likelihood of a synchronized monetary policy easing.
- Currency Strategy: TD advises strategically positioning for a stronger USD by fading the recent appreciations in EUR, GBP, CAD, and CHF, which they view as temporary and misaligned with broader economic indicators.
Conclusion:
TD's analysis supports a bullish outlook for the USD in the medium term based on sustained inflation differentials and recommends capitalizing on recent counter-trend moves in other major currencies.
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