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Monday, February 26, 2024
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USD to be highly responsive to data against soft landing view – Commerzbank

The recent correction of USD strength was not driven by economic data releases, but rather by traders who were uncomfortable with the EUR/USD levels below 1.05. This correction does not indicate a trend reversal or an end to the USD rally, as the belief in a soft landing of the US economy remains largely unchanged. However, the market’s strong anticipation of a soft landing means that any data that contradicts this view will likely have a significant impact on USD exchange rates.

Despite the lack of significant changes in economic data, some traders were not satisfied with the low levels of EUR/USD below 1.05. This shows that there is still resistance to further depreciation of the euro against the dollar. While this correction does not signal a major shift in the USD rally, it does highlight the sensitivity of USD exchange rates to data that challenges the prevailing narrative of a smooth economic transition in the US.

The market’s confidence in a soft landing of the US economy means that any data that deviates from this expectation will have a strong influence on USD exchange rates. Traders have placed heavy bets on a smooth economic transition, and any evidence to the contrary will likely result in significant reactions in the currency markets. Therefore, it is important for traders to closely monitor upcoming data releases and adjust their strategies accordingly to capitalize on potential shifts in USD exchange rates.

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