The US dollar is failing the test

The dollar bounce hasn’t impressed

A few weeks ago all the talk in the FX market was about ‘the end of the US dollar’.

As usual, that marked a bottom and the US dollar has staged a bounce. It got help from a rout in tech shares and general risk aversion.

None of that is surprising. What does surprise me is just how shallow the dollar bounce has been. After non-stop selling since late-May, the extent of the bounce in the Dollar Index is barely recognizable.

At the moment, USD/JPY is sinking and even cable is bouncing despite non-stop Brexit news. If you want to stay away from news risk, the AUD/USD looks solid here.

Overall, there is so much more value in equity markets outside of the US and the inability to sustain any kind of dollar strength is a very negative sign going forward.

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