The Dollar Forecast Is Bullish, Get On Board While You Can

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The Dollar Forecast Is Bullish, Get On Board While You Can

FOMC Is Hawkish, No More Cuts Are Coming

The FOMC cut rates by a quarter point this week and that was expected. What was also expected was an outlook for more cuts, possibly THREE more cuts, and that is not what we got. Quite the opposite in fact, based on the individual opinions of the member of the committee both voting and non-voting the outlook for future cuts is nil. Within the committee five were in favor of no cuts this month and another five in favor of no-more cuts this year which is enough to ensure that we won’t. Get any more cuts, that is.

The Dollar Index reflects this view. The index retreat from its recent high over the past two weeks but found support above the short-term moving average. The moving average is trending higher and the indicators are pointing to a trend-following swing in prices so I am optimistic a move to retest the recent highs is brewing. Because data in the EU, the UK, and Japan all support expected easing from the ECB, the BOE, and the BOJ, a move to new highs is also expected.

The EUR/USD is likewise consolidating at the short-term moving average for a trend-following move. The difference is this move is bearish and likely to the pair down to a new low. Stochastic is already showing a strong bearish entry signal so a move to retest the current low is expected. If MAC confirms the move a break to new lows will follow soon after. Possibly in tandem with ECB easing or economic data that supports ECB easing.

The GBP/USD looks like it might be in a bullish reversal but I don’t think so. What I see is an asset that might have reversed if not for shifting outlook and Brexit uncertainty. When it comes to the Brexit the only thing that is certain is uncertainty, the latest news is that the Supreme Court will rule on Johnson’s suspension of Parliament next week. Back to the point, the recent rally is extended and already showing signs of snapping back and well below the prime resistance target. The indicators are bullish but both are high in their ranges, show an overbought market, and poised to fire strong bearish signals. A move to retest the EMA is likely, a move below that will probably retest the recent low.

The USD/JPY is an example of what makes technical analysis so tricky. At face value, this chart is very similar to the GBP/USD but to me, the bias is bullish in favor of the dollar. While the pair remains below some resistance targets it is above the key target for reversal. At the same time, the indicators are bullish but have cooled off somewhat allowing room for another push higher in prices. The pair may retest the EMA but, if it does, it will be an opportune entry point for patient traders.

US Dollar (USD) Forecast: Fed Boosts Liquidity, Expected to Slash Rates Again Next Week

US Dollar Weekly Price Forecast, Analysis and Chart:

  • Emergency US dollar liquidity underpins King Dollar standing.
  • Further interest rate cut expected at next week’s FOMC meeting.

US Dollar Recovery Continues

The US dollar has once again proved that it is the safe-haven asset of choice when markets turn sour, jumping higher all week as global financial markets crumbled on heightened coronavirus fears. The Fed announced a USD1.5 trillion injection of short-term liquidity Thursday, but even this wave of new money failed to dampen the greenback’s strength, with risk-off buyers to the fore. The Fed’s move has helped to underpin equity markets, in the short-term at least, after global indices crashed into bear market territory throughout the week. The dramatic sell-off across the board – reminiscent of the 1987 crash – prompted a ‘dash-for-cash’, with other safe-haven assets, including gold, sold-off indiscriminately.

US Dollar Basket Daily Price Chart (September 2020 – March 13, 2020)

Earlier this month the Federal Reserve announced an emergency 50 basis point interest rate to take the effective rate down to 1.00% – 1.25%, the first emergency cut since the global financial crisis of 2008. Next week the markets are pricing another, larger, rate cut at the FOMC meeting on Wednesday with 91 basis points priced-in, indicating the potential for a 100-basis point cut, taking the effective rate down to 0.00% – 0.25%. The Fed may also announce additional quantitative easing, although yesterday’s actions were dubbed by many as QE4 after the Fed said that they could buy maturities across the curve.

The US dollar now stands between being the ultimate safe-haven asset and as a currency that has lost is yield advantage against a range of other currencies. While other central banks have cut rates, none of them will have come close to matching the Fed if 75bps or 100bps are slashed net week. In markets as volatile as this, liquidity is King and will remain so until the coronavirus spread slows, leaving the US dollar underpinned and primed to potentially move even higher.

The Dollar’s Bullish Breakout

By Adam O’Dell – February 3, 2020

The U.S. dollar bounced around like a buoy in choppy water last year.

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It began the year in a strong uptrend, gaining more than 5% by the middle of May. Then in late May the Fed began broadcasting its plan to taper its monthly bond purchases. This taper talk sent the dollar lower from June through October, before it ended the year slightly down (-0.7%).

Now that the Fed is actually tapering, the dollar is on the rise. Here’s a chart of the U.S. dollar index, a measure of the dollar’s strength against a basket of foreign currencies:

From what I can see, the dollar now appears to be on the verge of a bullish breakout. Thanks to its strength in November and December, the dollar index broke above the declining trend line (the white dotted line in the chart) that had kept it lower for most of the year. That’s a technical signal that shows dollar bulls are overtaking the bears.

Even more important is the fact that the market has fully digested the Fed’s taper plan. While the speculation phase (May to September 2020) was a drag on the dollar, the actual tapering has been supportive of the dollar.

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