USD: BBDXY - Back Below 1200, Price Action Is Ugly

The BBDXY range overnight was 1192.81 - 1197.02, Asia is currently trading around 1192. The USD again slipped lower overnight, and this time in the face of US yields moving higher. The market is much more comfortable selling USD’s, while below 1220 rallies should continue to find supply. The price action for the USD is really beginning to stink and you can see why most of the market wants to express a short. There is lots of event risk coming up next week and we are heading into month-end so caution is warranted.

• China Daily -  “Reports that it is a 'strategic necessity' for the scaling back of holdings in US Treasuries, given the declining confidence in the dollar as the reserve global currency.”
• Robin Brooks on X: "US exceptionalism isn't over. It's the opposite. Foreign flows into Treasuries and US stocks roared back in May after small outflows in April. This suggests the fall in the Dollar happened on narrow liquidity. Markets still believe in US outperformance...”
• (Bloomberg) - “American Exceptionalism Leaves US Stock Premium at More Risk. The global premium afforded to US stocks and bonds is on less stable ground as it can no longer rely on the dollar’s reserve status. The US’s current account deficit is now almost exclusively funded by private, non-central bank inflows.”
• There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This consensus will also result in some decent short squeezes as a lot of the market is positioned the same way.
• Data/Events :  Initial Jobless Claims, Chicago Fed Activity Index, S&P Global US PMI’s, Building Permits, New Home Sales, Kansas City Fed Manf. Activity.

Fig 1: BBDXY Weekly Chart

Source: MNI - Market News/Bloomberg Finance L.P