This year, buying emerging market currencies with the US dollar has delivered the most attractive returns in a decade, and a Citigroup strategist says there is still room for this trade to develop – at least in the short term.
Luis Costa, the head of emerging markets strategy at Citigroup, said in an interview that the more dovish stance taken by the Federal Reserve, along with the cautious attitude of emerging market central banks, will continue to boost the exchange rates of developing countries’ currencies against the US dollar.
The Bloomberg index, which measures the returns of carry trades in eight emerging markets funded by short positions in the US dollar, has risen by more than 10% this year and is on track for its biggest annual gain since 2017. A carry trade is a strategy of borrowing in low-interest-rate countries to invest in high-yielding assets and currencies.
Costa said: “The average stance of emerging market central banks is also very cautious – remaining largely neutral in many regions – which continues to suggest the sustainability of real policy rates.” “It is equally important to take into account the market’s implicit expectation of a more dovish stance by the Federal Reserve in 2026. Considering all these factors together, despite the renewed interest of international investors in the US stock market, these factors still support a steady (downward) trend for the US dollar.”
Technical analysis:
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Gold: The overnight resistance range for gold eventually began to show strength around 3345. For today’s intraday trading, we have made some adjustments to the short-term operations on the price. If it breaks below the blue zone, we can try to catch a short-term short position. Additionally, we will keep an eye on the possibility of a pullback after the liquidity at around 3350/55 is tested. For detailed positions, please consult the plugin.
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Nasdaq: The key support and resistance level for today’s price is around 23,350. If a breakthrough is achieved, a long position can be attempted when the price retraces to the blue momentum area. Conversely, if the breakthrough fails, after the price drops below 23,000, pay attention to the opportunity to sell on a rebound. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: Yesterday, after our price broke through 63.50, it perfectly retraced to the blue area and then rose. Today, we continue to pay attention to the signal of retracement confirmation after the momentum breaks through. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key economic data and events to focus on:
16:00 Eurozone August Manufacturing Purchasing Managers’ Index (PMI) Preliminary Value
16:30 UK August Manufacturing Purchasing Managers’ Index (Flash)
18:00 UK August CBI Industrial Order Expectations Diff.
20:30 U.S. Seasonally Adjusted Initial Jobless Claims (in thousands) (to 0816)
21:45 US S&P Global Services PMI for August (Preliminary)
23:00 US Federal Reserve Governor Waller to speak at the Wyoming Blockchain Conference
