USD received a timely boost yesterday
The turnaround by the USD in yesterday's trading could not have been at a better time. The dollar was smacked across the board in Asia and Europe, but pretty much pulled out a 'get-out-of-jail' card at the end of the day.
The rebound is in sync with a bounce in the dollar index from the low posted on May 2016. Coincidence? Maybe not.
2017 has been a wretched year for the USD. The dollar index posted consecutive quarterly losses in Q1 and Q2 - the first time since 2014. Not only that, it looks set to close August in the red and that would mean six consecutive months of decline - the first time that has happened since the end of 2007.
But if there's ever a time for the dollar to make a come back, this is it. If you zoom out, there's not much left in terms of support if this level breaks. And that could be a slippery slope if the dollar starts to head lower from here.
Politics remain a double-edged sword for the USD. On one side, there's talks of tax reforms. On the other, there's the debt ceiling issue and another possibility of a government shutdown (not that it has not happened before, but one with Trump in office will certainly be interesting if he drags it out to push the blame on Congress).
The biggest saviour at this point for the USD is the Fed. But with the Fed's dual mandate at opposite ends (inflation undershooting, labour market overshooting), it will be a tough one to see the Fed take any bold steps in boosting the USD by talking up rate hikes.
