DXY held, but the uptrend looks set to be tested.
AUD is ready to rise.
CNY supportive.
Gold whoa!
Metals mania returns.
The chosen one.
EM lagging.
EM junk warning.
Yields firmed.
Stocks too.
Goldman reckons DXY is ready to fall meaningfully.
We believe that as the US data backlog is slowly cleared it will reveal a softer run rate for the economy, particularly the labor market, that will clear the way for more policy easing and a weaker Dollar from here to the end of the year.
There was some flavor of that in the data this week, but for the most part these reports are still quite lagged, which helps explain the very low levels of FX volatility.
Nevertheless, moves over the last week help reinforce our thesis from last week that stabilizing risk sentiment combined with rising expectations for further Fed cuts should weigh on the Dollar over time.
Foreign developments have also helped pull the Dollar lower this week: escalating FX warnings from Japan officials, a benign budget delivery in the UK (see GBP bullet), and another strong step for CNY have all been key contributors that we think will be fairly long-lasting.
I would add that the metals mania is foreshadowing the same. Nothing is ever certain in FX, but this is a solid base case.
AUD up into year end.
