Richard Franulovich, head of FX strategy at Westpac, suggests that the USD could not find its feet despite a Fed pause and strong payrolls but now that yields are rising it has regained poise, DXY 97.0 likely to provide strong short term support.

“The 1-3 month trend still looks negative, though. There’s one more leg up for risk appetite on confirmation of a partial US-China deal in Dec (still more likely than not). And while that will lift US yields further and cement a Fed pause, the more consistent trend has seen the USD fall (ex-JPY), as receding tensions take pressure off the more trade/factory-sensitive Asia/Europe economies. The New Year will see impeachment and 2020 elections develop as a more prominent USD driver too. Trump’s tax and trade policies accentuated the US-RoW growth disparity, cementing USD upside, and any lengthening in Trump re-election odds won’t sit well with the USD. Slightly better German data (factory orders, services PMI), cautious German backing for a banking union, a more open minded stance on fiscal stimulus and diminished risk of EU auto tariffs also play to less bullish USD atmospherics into year’s end.”