Credit Suisse with analysis of why DXY has stabilised. I will only add that the EUR long is so large now that a DXY short squeeze is inevitable.
The first two weeks of Q2 have seen an extension of the FX market themes that prevailed in the latter half of March, but with reduced overall intensity. While the broad USD has rebounded marginally from last week’s lows (Figure 1), it remains generally under modest pressure, even if more unevenly so of late. As seen in Figure 2, the broad USD decline that took place in the two weeks following the mid-March peak in US banking turbulence lost momentum in the past fortnight against pro-risk FX (MXN, BRL and ZAR) while persisting instead against the likes of EUR, CHF and GBP.
The key culprits of this mixed price action are in our view the following:
