Strategists at Westpac believe the US dollar could resume its downside in the short term.
“A spike in risk aversion may save the USD on selected crosses near term but the beyond that the lacks underlying support”.
“Q1 growth expectations remain in freefall, the Atlanta Fed's latest nowcast pegging growth at just 0.4%”.
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“A June Fed hike would be off the table given the time needed to rebuild confidence in the outlook after a soft Q1, not to mention the proximity of the UK EU referendum in June”.
“But, we won't get too carried away - DXY downside shouldn't extend much beyond key support into 92.5-93.0. Recent weak hard data is almost entirely a Jan/Feb story yet since then US financial conditions have eased and the PMIs have risen strongly”.
“Developments a year ago could prove instructive. Back then a dovish March FOMC upended expectations and sent the USD sharply lower into mid-May 2015 before a steadily firmer complexion to the data and diminished Fed anxiety helped the USD stabilise”.