Core Viewpoint - The expectation of interest rate cuts by the Federal Reserve has increased significantly due to weak non-farm payroll data, yet the actual decline of the US dollar has been less than anticipated. Despite this, major Wall Street banks are collectively bearish on the dollar, citing overvaluation and weak fundamentals [1][2]. Group 1: Market Analysis - Citigroup, Goldman Sachs, and Morgan Stanley have published reports indicating that the long-term logic for a decline in the dollar remains intact, with significant short-selling potential still available [2][12]. - Following the release of non-farm data, the market's expectation for Fed rate cuts surged from approximately 30 basis points to about 60 basis points, highlighting the weak labor market [5][6]. - Despite the shift in interest rate expectations, the dollar's actual decline has been relatively moderate, suggesting that downward momentum has not been fully realized [6][10]. Group 2: Currency Valuation - Citigroup believes that the current valuation of the euro against the dollar is still below fair value, with potential for the euro/dollar exchange rate to overshoot to 1.20 [3][10]. - Goldman Sachs notes that the dollar's real trade-weighted exchange rate is still 15% above its long-term average, while the US current account deficit stands at 4% of GDP, both of which are unfavorable for the dollar [12]. - Morgan Stanley emphasizes that domestic policy uncertainties, particularly following the resignation of Fed Governor Kugler, add downward pressure on the dollar [12]. Group 3: Short-term Dynamics - The positioning of leveraged funds in dollars has flattened, indicating that previous large-scale liquidations may have concluded, which could affect the dollar's next movements [4][13]. - The dollar's future trajectory will depend heavily on three potential catalysts: the nomination of a new Fed governor, changes in the leadership of the Bureau of Labor Statistics (BLS), and the upcoming CPI inflation report on August 12 [4][14]. Group 4: Potential Catalysts - The nomination of Kugler's successor is seen as a direct catalyst that could likely be bearish for the dollar, with potential candidates being Walsh or Hassett [14]. - Changes in BLS leadership could inject uncertainty into upcoming employment reports, leading to market speculation on data outcomes rather than accuracy [14]. - The CPI report on August 12 is critical, as unexpected inflation data could challenge the narrative of rapid Fed rate cuts and support the dollar [14].

Core Viewpoint - Citigroup analysts have exited their long position on EUR/USD at a stop-loss of 1.1540, resulting in a loss of 1.3% including interest, attributing the recent pullback to position squeeze following the EU trade agreement announcement [1] Group 1 - Analysts Daniel Tobon, Osamu Takashima, and Brian Levine established the position at 1.1680 on July 11, with a target price of 1.20 [1] - The analysts believe that if the US dollar continues to weaken in Q3, it is more likely to be driven by soft labor market data from the US [1] - Despite the forced exit from the position, the analysts are looking to rebuild their short position on the dollar before the US employment data is released on Friday, potentially against the euro or Swiss franc [1]