Dollar Sees Thin Margin for Recovery with GDP, FOMC Decision

Fundamental conditions have not deteriorated markedly for the dollar over the past few weeks; but sentiment surrounding the currency certainly has. With market participants looking for a consistent trade to take advantage of while broader capital markets seem to struggle for direction, the greenback-funded carry trade has turned into the FX traders go-to position. With this preconceived belief that a dollar-short is a solid setup, the masses are far more sensitive to negative developments and simultaneously downplay positive events. There are a few catalysts due this coming week that can temporarily alter the benchmark currency's fortunes; but to truly alter its course would require a deeper fundamental shift. We should head into the new trading week expecting prevailing trends to hold up; but also be ready to recognize and react to changes in the backdrop.