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The risk rally that has hammered the US dollar as equity markets outperformed might be coming to an end according to the FX Analysis team at TD Securities. The surprise on May’s payrolls might trigger a USD comeback on the mid-term.

 

Key quotes

“We think there is some understated weakness in the surprise US jobs report, it may embolden the risk-on stance. This may compel the market to revisit the ‘Buy America vs. Buy the ROW’ theme.”

“The ROW element has clearly dominated recently. NFP might give credence to a rotation back to the US, however. This is especially the case if markets rethink whether accommodative policy will end sooner or if the US may outperform its peers on growth. A rotation in the pro-risk stance could see the USD recover from deeply oversold levels.”

“Ahead of the FOMC, this could leave JPY more inclined to respond to risk on the crosses than vs. the USD (…) EURJPY may offer clues as to whether the bearish USD theme runs out of steam in the short-term. We note, the pair has crossed its 50% retracement from the 2016/2018 range with a cluster of resistance shy of the 125 mark.”