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The US dollar has been moving according to the political flow of news in the US. The Comey memo brought the greenback down and the appointment of a special counsel helped it stabilize. What’s next?

Here is their view, courtesy of eFXnews:

TD Research notes that  as the USD has lost ground as of late, it has nearly unwound the Trump trade  and such a price action fits within the script on a shift towards trade protectionism.

“That is, the greenback would underperform other “reserve” currencies but EMs and high-beta G10 would slide on faltering risk appetite,” TD adds.

In addition, TD notes that while the recent news flow has created a lot of noise, the prospects of imminent action on the US political front is very limited at this point.

In that regard, TD thinks that the market reaction to the recent news flow was likely exaggerated by the key trading theme: short vol, long carry and looking to hedge with short USD/JPY.

“Still, the key point now is these events could jeopardize economic reform so  we look to hold short USD exposure into Comey’s testimony next week,” TD argues.

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