FXStreet (Łódź) - The eFXnews team point out that Credit Agricole believe that the broad-based rally in USD is driven mostly by data surprises and economic divergence.
"US economic data surprises surged in August and the index has retraced nearly 76% of the 2014 move. Moreover, yesterday’s release of the August ISM manufacturing showed the index at a multi-year high."
"In relative terms, the outperformance of US data surprises against the G10 persists."
"This dynamic has led the 2-year rate to increase 14bp over the past three months, recoupling the association between front-end rates and FX."
"We also note the recoupling of the 2-year rate and FX suggests that economic data, rather than Fed rhetoric, should have a greater impact on price action."
"As such, stronger US economic releases this week could keep the recent USD trend in place, especially at the expense of currencies with central banks in easing mode."
"However, mild pullback is likely given market positioning and possible technical exhaustion."
"A possible pivot point for the DXY index is the 83.73 level – a key retracement level from July 2013 high."
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