USD: Hedge Funds On The Short Side; USD Sell-Off Begins 1-2 Months Ahead Of Fed Rate Cuts – Citi

June 12, 2019 Off By admin-445

Markets are pricing in two rate cuts from the Federal Reserve this year. What does it mean for the dollar?
Here is their view, courtesy of eFXdata:

Citi discusses the USD outlook and notes that Fed rate cut expectations are likely to keep USD on the defensive, while the greenback also faces challenges ahead of major US releases this week, including May retail sales, Industrial Production and CPI.

USD longs remain at risk, as per the CitiFX Flows & Positioning Indicator that shows leveraged (hedge fund) selling of USD.

History also shows that USD sell offs begin some 1-2 months prior to Fed rate cuts (most analysts now see the Fed cutting in July) leading to USD weakness by around 3.5% on average (so far, the USD Index (DXY) has fallen a little over 1.1%),” Citi notes.

“This week’s US May CPI is likely to garner most attention given how critical it is to Fed rate cut expectations. Citi analysts expect a solid 0.21%MoM rebound in May with weakness in transitory factors likely moderating while underlying components of inflation remain solid,” Citi adds.

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