TD Securities strategists keep a neutral near-term view on the US Dollar (USD) but maintains a bearish bias over the rest of 2026. They highlight opposing forces from US data strength and potential geopolitical easing, see suppressed EUR/USD volatility as an opportunity to own front-end USD vols, and argue that rate differentials and safe-haven dynamics no longer justify a sustained Dollar surge.

Vol view and medium-term downside

"Neutral short-term USD view weighs on FX vol. We remain more neutral on the USD in the near-term as two opposing forces work simultaneously."

"On one hand, upside pressure persists, driven by relative data and rate divergence between the U.S. and the rest of the world. We wait to see if NFP release this week can buck the trend of resilient US data releases as our macro team forecasts a weaker headline number and unemployment rate inching higher."

"On the other hand, downside risks remain, as any positive geopolitical developments—particularly around a reopening of the Strait—would likely support broader risk sentiment and reinforce USD weakness."

"Lack of directional breakouts in the USD has suppressed front-end FX vols. The 1m EUR/USD implied vol now trades at 5.0, below both the 1m and 2w realized vols."

"We hold a bearish USD bias for the remainder of the year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)