BNP: Too soon to buy the USD – look to sell on rallies

From the FXWW Chatroom: The firming of the USD vs EUR and JPY over the past 24hrs suggests that the market is increasingly uncomfortable maintaining current levels of short USD exposure, with continued comments from Fed officials suggesting markets are under-pricing rate hike chances and Japanese officials warning in increasingly strident terms of their capacity to respond to yen strength. Our BNP Paribas FX Positioning Analysis (see  here) indicates that USD positioning is at its largest short since early-2013. We turned more neutral on the USD vs. the EUR and JPY last week as the pairs reached or exceeded our forecast targets, but we remain more inclined to sell the USD on rallies vs. the EUR and JPY than to buy on dips as we currently see few catalysts to trigger a USD recovery just yet. Fed President Dudley, speaking today, already delivered a surprisingly hawkish message on Friday and the data calendar is fairly quiet until April retail sales numbers are released on Friday, with NFIB small business confidence the only release on Tuesday.  Our economists expect a stable reading today after the dramatic drop recorded in recent months, but they note that a further drop would suggest the current slowdown is gaining momentum.

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