USD Headwinds May Fade, Yen Shorts Shrink Further

The week ahead features Q1 GDP and the FOMC decision, two events widely expected to weigh on the USD dollar but if we look beyond the story begins to improve. Markets open the week relatively unchanged. CFTC positioning showed a small squeeze on dollar longs and a retreat of yen shorts. Our Premium EURUSD long at 1.0605 hit its final 1.0880 target on Friday. Other Premium trades: NZDUSD,  GBPAUD, EURGBP and GBPUSD are currently in progress.

Friday's durable goods orders was another black eye for the US dollar and the ninth consecutive soft reading. Weak shipments underscored how soft Q1 GDP will be, with economists downgrading estimates to around 1.0% but many in the market are looking for worse.

In addition, the Fed statement will surely reflect a disappointing quarter, soft housing numbers and dismal capex.

The thing is, that may be completely priced in now. After the numbers, or perhaps even sooner, the market will begin to look ahead and that could give the US dollar a spring. We noted at the start of April that, seasonally, it's the worst month for the US dollar on many crosses but the reverse is true for May. Keep that in mind with just four trading days left in the month.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -215K vs -212K prior JPY -14K vs -23K prior GBP -29K vs -36K prior AUD -35K vs -42K prior CAD -27K vs -31K prior CHF 0K vs 0K prior

Some shorts in GBP, CAD and AUD were squeezed out but euro shorts remain steadfast. A third push to 1.10 (or beyond) would rattle that confidence.

Yen shorts are the least bearish since the week of Oct 10, before the surprise BOJ moves. With the market nearly back in balance, it sets up a nice run in whatever direction USD/JPY eventually breaks.