The US dollar reversed losses yesterday amid heightening geopolitical tensions in the Middle East. Indeed, after the Syrian situation and the Iran nuclear deal, now we got the Gaza killings following the official opening of the US embassy in Jerusalem. After falling as low as 92.24 Monday afternoon, the dollar index surged 0.60% to 92.80. The rise of the index was mostly driven by the debasement of the Japanese yen (-0.50%), the Canadian dollar (-0.20%) and the euro (-0.18%).
However, it seems the rally is overstretched as buyers are shying away. April’s retail sales are due for release today with the headline gauge expected to ease to 0.3%m/m from 0.6% in March. However, when excluding auto sales, the measure should have accelerate with median forecast of 0.5%m/m compared to 0.2% in the previous month. We think that the risk is mostly on the downside for the greenback today as a disappointing read could re-fuel worries about the US growth outlook.
Overall, we maintain our bearish view on the buck as we estimate that the recent dollar appreciation is widely overdone.
By Arnaud Masset