Citi says risk/reward in US dollar longs 'attractive'

citi dl canary wharf london uk banks finance wall street city — Citi HQ at Canary Wharf, London U.K.Courtesy of Citi

Analysts sounded a positive note on the outlook for the US dollar, pointing out a mix of potential catalysts that might provide support.

In a research note sent to clients, analyst Daniel Tobon noted how the Greenback was still tracking the decline in US government debt yields.

Indeed, short-term interest rate differentials between countries were a well-known driver of near-term moves in exchange rates.

However, the US dollar index, a measure of the currency's strength versus its major trading partners, was now approaching "major" levels of technical support around 100.3-100.82 and the 200-week moving average.

He described the risk/reward for USD longs, while above those price levels, as "attractive".

The analyst added that for now the dollar index remained within the same range observed over the preceding two years.

Furthermore, the possibility existed of weaker euro area PMI and wage data being published.

So too, Federal Reserve chairman, Jerome Powell, who was due to speak the next day, might not "out dove" what markets had already priced in.

Finally, he noted recent reports that RFJ Jr. might abandon his bid as an independent candidate in the US presidential elections - perhaps during the same week - and endorse Donald Trump instead.

That could provide a boost to US dollar longs, he said.