Bank of America Global Research discusses the USD outlook and sees a scope for stabilization over the coming weeks.
"The USD is stuck in a tight range so far in August, following the strong sell-off in July. Market positioning is short and particularly stretched for real money. The consensus, based on our discussions with investors, remains very much bearish. However, August seasonality tends to favor the USD and some profit taking could keep the USD from weakening further in the short term. We see a number of possible offsetting forces that could affect the USD in the weeks ahead," BofA notes.
"The US pre-election period is starting and we expect markets to focus on the theme after Labor Day. The USD tends to strengthen ahead of the US elections, but this may not be a typical election. Vol also tends to increase before and after the US election, and we would expect this to be particularly the case if polls come closer in the weeks ahead. As we have argued recently, the USD implications for the day after the elections depend on the policies that the US will follow and nothing should be taken for granted at this point," BofA adds.