FX Daily: Investors Running Short on Dollars Ahead of Key Central Bank Meetings

FX Daily: Market running short dollars into this week’s event risks

Positioning data suggests investors are running reasonably large short dollar positions into this week's Fed, ECB and BoJ policy meetings. We do like a weaker dollar later this year, but the dollar's recent corrective rally might endure this week if the Fed hangs onto its tightening bias. For today, look out for European PMIs.

 

EUR: PMIs in focus

Our colleague, Carsten Brzeski, has just published his preview for this Thursday's European Central Bank (ECB) meeting. Given what could be a mildly hawkish Fed event risk on Wednesday and the prospect of the ECB less than wholeheartedly backing the idea of a follow-up September rate hike, we see some downside risks to EUR/USD this week. The FX options market suggests there should not be fireworks, however. The combined 24-hour trading period capturing both the Fed and the ECB decisions only sees a 60 USD pip range priced by the FX options market. As a result, we think this EUR/USD correction may only extend to the 1.1050 area.

Today, it is all about the July flash PMIs in Europe. Consensus is slightly pessimistic, expecting another sub-50 reading for the eurozone composite PMI after it reverted back into contractionary territory last month.