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The British pound and Canadian dollar are forecast to continue weakening against the US dollar over the near-term argues Brian Daingerfield, FX Trading Strategist at RBS who writes:
The employment report released today doesn’t exactly add fundamental fuel to the recent USD turnaround, but the resilience of the USD in light of a somewhat soft report may in itself be telling.
CFTC positioning data show speculative accounts hold short USD positions against the majors last week for the first time since 2014, but after a strong technical reversal there may be scope for USD shorts to clear further next week.
Admittedly, my short-term positive USD bias isn’t on the strongest of fundamental footings, given the lack of a clear turn in fundamentals.
The data are simply too inconsistent to force a rethink of the Fed’s current path, and the Fed’s leadership appears inclined to maintain a cautious stance on global risks unless overwhelmed with evidence that inflation will rise sustainably to target.
- Related: The Signal to More Sustained GBP/USD Sell-Off: Credit Suisse
- British Pound to Dollar Rate Forecast to Fall Back to 1.35 by Societe Generale, Others See Momentum Fading
In this case, we still prefer short-term USD longs against GBP and CAD – two currencies where USD momentum turned bullish from oversold levels this week and where we see risks of slowing data.
We think the recent weakness in CAD can continue after a key technical break in USD/CAD on Tuesday, and we’re looking to establish USD/CAD longs on pullbacks toward the Tuesday low 1.2461.
We think GBP/USD downside can extend next week as the BoE keeps a dovish outlook. While the referendum may in itself portend a cautious stance, the economic data have weakened as well – both the manufacturing and services PMIs slipped to multi-year lows in April.