Market Talk: FXWW

From the FXWW Chatroom: BAML: BofAML’s FX Strategist Vadim Iaralov highlights that the USD is oversold vs. all of G10 for the first time in over a year according to our measure of USD MAA breadth. We see this as a rare buying opportunity. This happened only five times since 2012 and tends to promptly reverse.
Dollar is down but not out:In recent weeks, USD/JPY was a bright spot for the US dollar even as the EUR rose sharply and USD came under pressure. However, USD/JPY longs have just capitulated with reversal seen across all time zones. The USD downtrend is now complete and starting to look oversold ahead of the Fed on July 26. OCTAVE and FORTE are both bullish USD.
Buy USD/MXN: Up-down vol warns long positioning is stretched and a short squeeze is possible: Our positioning model sees MXN longs at risk and recommend buying USD/MXN, in-line with our fundamental view. Also up-down volatility is now greater when USD/MXN spot goes up, consistent with short covering, with a possibility of a short squeeze. The risk to this view is a dovish Fed.
Sell EUR/CHF: positioning model is bearish, likely to correct lower:EUR/CHF uptrend looks stretched and may correct lower, according to our positioning model. EUR/CHF Residual put skew and Up-Down vol together suggest long positioning in the pair. Recently, upward momentum has been softening and we expect EUR/CHF to reverse. The risk to this view is continued strong data from the EU.

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