The ongoing trade war is creating a lot of confusion on the FX market, as market participants struggle to guess out it would play out. So far, the US dollar has largely benefited from this uncertainty and extended gains against most of its peers, with the exception of safe haven currencies.
Since mid-June, the speculators are long USD again. This is the first time since June last year. Traders are heavily against the Kiwi, the Aussie and the Swissie. However, regarding the latter, speculators started to reduce their short CHF exposure over the last few weeks amid escalating trade tensions.
Recently, Trump has been facing setbacks in the form of retaliatory measures and relocation announcement of certain US companies, which would suffer from upcoming tariffs. Against such a backdrop, it is reasonable to expect that Donald Trump would ease his stance and negotiate with trade partners. Meanwhile, the market remains in risk-off mode by dumping currencies of export-oriented countries and favouring the Swissie and the yen. We see no reason for this trend to reverse anytime soon, at least as long as the uncertainty persists.
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