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Dollar’s Dance With Bulls Unlikely to Last as Negative Forces Remain

imageForex9 hours ago (Aug 03, 2020 02:57PM ET)

(C) Reuters.

By Yasin Ebrahim -The U.S. dollar rose on Monday, looking to get the new month off on a solid footing, but optimism on Wall Street for a prolonged recovery appears unlikely as analysts warn dark days will return.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.24% to 90.54.

The dollar’s positive start to the week was helped by better-than-expected manufacturing data.

After falling 5.5% in July, the dollar’s path ahead is likely lower as the negative forces wreaking havoc on the world’s reserve currency remain at large.

“Following some hesitancy in June and the first half of July, the negative forces acting on the USD have returned to the fore,” National Australia Bank (OTC:NABZY) said.

The recent surge in the euro – on the back of the proposed EUR750 billion recovery fund – and the U.S.’s failure to contain the outbreak have been singled out as key headwinds for the greenback.

But the handsome run in the euro and the EU’s handle on the virus outbreak are not the only factors that have kept the dollar in the doldrums.

The narrowing of government bond yields between EU and U.S. rates has also reduced the dollar bias that was prevalent in prior months.

“(T)he roots of the USD depreciation cycle now in train lie in the sharp compression in previously USD-favoring yield differentials … On this basis alone, there should be much more to come by way of USD weakness,” National Australia Bank added.

The most recent data appears to support the bearish narrative on the dollar.

Net shorts (bets against the dollar) rose to a nine-year high in the wake of the Federal Reserve’s dovish tone last week, according to data from CTFC.

Net shorts against the greenback hit $24.27 billion in the week ended July 28, up from $18.81 billion the prior period, CFTC data showed.

Dollar’s Dance With Bulls Unlikely to Last as Negative Forces Remain

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