USD flows: Dollar/EM could be a near-term tell
Looking at dollar price action more broadly suggests it could become the dominant n/t driver
USD/regionals diverse but broadly weak, some becoming unstable
Profit-taking evident even in the strong relative shock / terms-of-trade thematic gainers
Maybe not quite the direct strong driver of back in peak dollar recycling days, but it still might be worth keeping an eye on Asia regional as a bit of a potential tell on a shift in short-term dollar dynamics and prevailing thematics.
Looking at just regionals versus the dollar, cross region performance is varying significantly of course, but a number of pairs are starting to show more heated dollar gains, verging towards panic accelerations in a few cases. As a whole, performance is becoming notably weak.
This reflects respective vulnerabilities but also highlights illustratively how risk pricing on the Iran standoff is uneven and perhaps not being fully reflected in the majors, where the euro has been focused more on assumed central bank reaction function divergences, at least until the last few days.
There's definitely some scope for dollar driven action to start to trump other recent drivers that have been driving outright and relative position trades of late.
Indeed, even outside of Asia regionals, even favoured trades on respective exposures and terms-of-trade pricing, such as BRL, are now starting to see some reactive profit-taking kick in, USD/BRL bouncing in the 2005+ downward channel, the pullback in AUD discussed elsewhere.
During unresolved crisis events, the price action tends to rotate between initial thematic trade (e.g. relative shock and relative ToT initial trades) to eventual volatility and dollar driven position shakeouts. Even with the dollar's compromised status and still prevailing high medium-term real effective exchange rate level, short-term price action remains at risk of turning more outright dollar driven unless good news on Iran is forthcoming.