USD: Time To Be Selective

05/27/2020

Danske Research discusses the USD outlook and prefers a selective approach in picking USD longs over the coming months.

"Into the summer, currencies may have to balance trade and emerging market virus woes on the one hand versus a continued smooth reopening of Western economies on the other. In this environment, we believe the broad USD will trade on a strong footing, not least in light of the rising risks of a scrapped US-China trade deal," Danske notes.
There is a risk that reflation could gain traction on positive virus news ahead and past easing (USD negative), but we find the short-term risk-reward for renewed broad USD strength more attractive after all. That said, we think it's important to selectively distinguish between funding currencies and, in light of our very near-term bullish EUR view, we instead prefer the likes of the SEK, AUD and JPY," Danske adds.