Our cyclical and tactical indicators still point to a rebound in the USD now that the Fed easing cycle has been fully discounted.
On a cyclical basis, our fundamentals-based FX edge model shows the USD has a positive expected 1-year total return against most G10 currencies.
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Meanwhile, most tactical indicators we monitor suggest the dollar is bottoming out. Our Fast Money diffusion index – a measure of speculative activity – has risen from 0%, which has marked the start of dollar rebounds over the past decade. To add to this, breadth against G10 currencies has stabilized and short positioning against the dollar remains stretched.
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Our preferred expressions for a tactical dollar bounce are long USDKRW (link) and short EURUSD (link). Our FX Edge model triggered a buy signal on USDKRW last month, while we think the EUR can weaken further as the policy divergence implied by SOFR and Euribor markets narrows (link).