TD Research notes that as the USD has lost ground as of late, it has nearly unwound the Trump trade and such a price action fits within the script on a shift towards trade protectionism.
“That is, the greenback would underperform other “reserve” currencies but EMs and high-beta G10 would slide on faltering risk appetite,” TD adds.
In addition, TD notes that while the recent news flow has created a lot of noise, the prospects of imminent action on the US political front is very limited at this point.
In that regard, TD thinks that the market reaction to the recent news flow was likely exaggerated by the key trading theme: short vol, long carry and looking to hedge with short USD/JPY.
“Still, the key point now is these events could jeopardize economic reform so we look to hold short USD exposure into Comey’s testimony next week,” TD argues.
Source: TD Securities Research
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