Investing.com – The US dollar received a boost last week, but UBS has advised caution for those looking for a quick reversal of recent strength, only seeing very selective opportunities for now.

“Our expectation last week that ‘conventional’ G10 news linked to US labor market developments would overwhelm ‘unconventional’ factors such as geopolitics, oil price swings and China stimulus news proved correct, albeit largely because US Sep employment data delivered a dramatic upside surprise,” analysts at UBS said, in a note dated Oct. 9.

That said, the Swiss bank noted that the moves are fully in line with rate differential dynamics, and so quickly looking for a reversal in favor of a weaker USD may not be rewarding as the USD is not especially expensive on that basis.

Additionally, markets are now within touching distance of US elections, and the outcomes remain too close to call with any confidence.

Given that a “Red Sweep” remains a realistic possibility, and an outcome that the bank sees as clearly USD-bullish, the odds rise that the period ahead of the elections sees more short-term tactical trading rather than the start of persistent trends – unless the polls start to point to a clear winner.

Still, if investors are prepared to try to see through the election noise and commit to the idea that relative cycles will take the greenback lower on a longer-term horizon, much more attractive entry levels are available than at the start of this month.

“With this in mind, this week we recommend going long a 12 Dec ‘24 expiry 0.6850 call with an RKO [reverse knockout] at 0.7100, an inexpensive way to hold on to one of our core views throughout what we anticipate as a period of potentially choppy price action,” UBS said.

UBS’s positive AUD views have been reinforced by the bounce in commodity prices on the back of China’s stimulus, which appears to have moved the needle on speculative positioning which has finally flipped long AUD.

At 04:55 ET (08:55 GMT), AUD/USD traded 0.3% lower at 0.6727.