USD vulnerable to profit taking if US core CPI underwhelms and Treasury yields retrace – SocGen

The Dollar maintained its winning run last week. Economists at Société Générale analyze Greenback’s outlook.

Dollar gains technically stretched

Technical levels for the Dollar appeared stretched after last week but a meaningful retracement and adjustment in positions would require a significant correction in nominal and real Treasury yields from the recent highs. 

US CPI on Wednesday and Retail Sales on Thursday line up an important test for tactics in FX and Treasuries. 

Over the past few weeks, dips in the Dollar have been bought and rallies in bonds have been sold, keeping yield spread differentials firmly in favour of the Dollar. Soft CPI and/or Retail Sales data could be a potential tipping point that restores a degree of equilibrium in long vs. short Dollar positions.