The price action in the US dollar over the past 12 months coupled with the economic developments leaves us with an expectation of U.S dollar strength in the medium term. Headline domestic data continues to strengthen in the U.S, although we’re not blinded by this and recognize the underlying weakness in some of the less prominent indicators.

I anticipate Dollar strength will come from the pricing in of higher yields as growth and inflation materialize as signaled in the latest ISM reports. Add this to Tax Reform developments that are giving hope to another economic boost and we have a bullish USD scenario that stems for ‘growth’.

However, there is a second scenario whereby the complacency in the market that has seen the S&P 500 rally to all-time highs with historically low levels of volatility, becomes an unwind scenario that sees USD strengthen on safe-haven flows. The catalyst for this type of risk off scenario comes in the form of geopolitical uncertainty (North Korea and Trump), or even the QE reduction plan ready to be implemented by the FED.

DXY

I use CFTC positioning data as a contrarian indicator and currently supports my long USD thesis. Despite resilient U.S data CFTC non-commercial short USD positioning looks to be ‘overstretched’. Looking at the likes of AUD and GBP and we see net positions remain very long, putting both at risk of unwinding.

CFTC

Chart Source: ANZ Research

I have a bearish bias on AUD/USD and GBP/USD in the coming months.

AUD/USD 1 to 3-month objective: 0.7550

GBP/USD 1 to 3-month objective: 1.2800

Trading foreign currencies is a challenging and potentially profitable opportunity for educated and experienced investors. However, before deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose. There is considerable exposure to risk in any foreign exchange transaction.

Traders Corner, and any of its affiliates, will not be held responsible for any losses that the reader incurs as a result of utilizing the information contained within our articles. The content provided, is put forward in good faith and believed to be accurate; however, there are no explicit or implicit warranties of accuracy or timeliness made by Traders Corner or its affiliates.

Analysis feed

Latest Forex Analysis

Editors’ Picks

When is the Aussie CPI data and how could it affect AUD/USD?

Considering the recent shift in the market’s risk sentiment, mainly due to the positive headlines from China, any upbeat reading can help buyers ahead of today’s Fed meeting. If the price pressure keeps being soft, odds concerning the RBA moving closer to negative rates increase, which in turn will pull AUD/USD below its multi-week low.

Read more

USD/JPY bulls step in on optimism surrounding coronavirus

As far as the coronavirus goes, the latest reports are that the number of known cases of the new virus rose by nearly 60% overnight.

USD/JPY News

3 Questions for the Fed

After experiencing its largest one day decline in months, stocks rebounded on Tuesday. While some investors may hope that the worse is over, it is important to realize that the full effects of the coronavirus has not been seen.

Read more

Gold drops further near $1565 amid risk appetite

Gold prices continued to move lower during the American session and reached a fresh daily low at $1566/oz.

Gold News

GBP/USD below 1.3000 ahead of BOE

The dollar continues to advance against all of its major rivals, getting an additional boost from upbeat CB Consumer Confidence. GBP/USD trading around 1.2980. BOE to have a monetary policy meeting this Thursday.

GBP/USD News

Forex Majors

Cryptocurrencies

Signatures