After pushing higher in the first part of last week, the US dollar reversed lower and saw follow-through selling ahead of the weekend. The reversal saw all the major currencies but the British pound gain on the greenback last week. Although the ineptitude of Prime Minister May has weighed on sterling, the immediate reaction to her departure saw the pound fall as the risk of a no-deal exit rose.
As we discuss below, the technical condition warns that the corrective forces could continue through the week ahead. Looking ahead of the macro calendar, this could persist until the run-up to the ECB meeting on June 6 and US employment data the following day. Of course, these things are subject to change and fine-tuning. The dollar remains supported by wide interest rate differentials and an economy that still appears stronger than Japan and most of Europe. It strikes us that this is a short-covering correction for the major currencies rather than a turn in the underlying trend.
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