FUNDAMENTAL FORECAST FOR THE US DOLLAR: BULLISH
- US Dollar drops in pre-positioning for FOMC coverage announcement
- Risk urge for food restoration affords set off for unwinding long-USD trades
- Rising development more likely to reemerge after the passing of important occasion danger
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The US Dollar suffered a second consecutive week of heavy losses. Price motion gave the impression to be outlined by pre-positioning for the upcoming Federal Reserve financial coverage announcement due September 26, albeit not of the kind envisioned in final week’s forecast.
Looking at market expectations implied in rate of interest futures, a hike following this month’s gathering of the FOMC committee has been all however absolutely priced in for a very long time. The chance of one other one in December has extra just lately grown to about 80 %.
This appears to have made for uneven shock danger, with extra scope for volatility if Fed rhetoric deviates from establishment within the dovish versus the hawkish path. That in all probability inspired an unwinding of speculative net-long USD publicity, which the newest COT knowledge put at a 16–month excessive.
Recovery in market-wide danger urge for food appears to have supplied the accelerant. The buck had enjoyed assist from haven-seeking capital flows amid latest worries about commerce battle escalation and rising market instability. As these considerations receded, merchants discovered a handy narrative for USD gross sales.
The down transfer appears unlikely to be lasting. If sentiment holds up, the Dollar’s unequalled yield attraction must be supportive. If it doesn’t, haven demand is more likely to reemerge. Getting on the opposite aspect of key occasion danger – i.e. the FOMC announcement – looks as if the prerequisite for uptrend resumption.
— Written by Ilya Spivak, Sr. Currency Strategist for DailyFX.com
To contact Ilya, use the feedback part under or @IlyaSpivak on Twitter
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