We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
GBP/USD
Bearish
USD/JPY
Bullish
Gold
Bullish
Oil - US Crude
Bearish
Bitcoin
Bearish
More View more
Notice

DailyFX PLUS Content Now Available Freely to all DailyFX Users

Real Time News
  • LIVE NOW: In this session, Currency Analyst @ZabelinDimitri will preview the upcoming week's main political themes and discuss their impact on financial markets https://www.dailyfx.com/webinars/146770987?utm_source=Twitter&utm_medium=DFXGeneric&utm_campaign=twr
  • Join @ZabelinDimitri 's #webinar at 12:30 AM ET/4:30 AM GMT to find out how geopolitical risk will affect the markets in the week ahead. Register here: https://t.co/hsULxMNOtM https://t.co/zVJwqxhcGd
  • #JapaneseYen has made some gains as #USDJPY bumps up against tough resistance. However the pair is probably consolidating and, absent a surge in risk aversion, biased higher. https://www.dailyfx.com/forex/technical/home/analysis/usd-jpy/2019/09/23/Japanese-Yen-Strengthens-But-US-Dollar-Bulls-Will-Probably-Step-Back-In.html?utm_source=Twitter&utm_medium=Cottle&utm_campaign=twr
  • What are the key facts one must take into consideration in the earning season and why is it important for the #stock market outlook? Find out from @JMcQueenFX here: https://t.co/tzAa2WClpv https://t.co/OMw9Xj5hOv
  • LIVE IN 30 MIN: In this session, Currency Analyst @ZabelinDimitri will preview the upcoming week's main political themes and discuss their impact on financial markets https://www.dailyfx.com/webinars/146770987?utm_source=Twitter&utm_medium=DFXGeneric&utm_campaign=twr
  • Commodities Update: As of 02:00, these are your best and worst performers based on the London trading schedule: Silver: 1.60% Oil - US Crude: 0.79% Gold: 0.13% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/f6xT4Uo2tO
  • Forex Update: As of 02:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.20% 🇦🇺AUD: 0.13% 🇬🇧GBP: 0.08% 🇨🇭CHF: -0.03% 🇨🇦CAD: -0.05% 🇯🇵JPY: -0.13% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/co2JkXN1A9
  • LIVE NOW: Join DailyFX Senior Strategist @IlyaSpivak LIVE as he discusses the outlook for the financial markets in the week ahead! https://www.dailyfx.com/webinars/889679267?utm_source=Twitter&utm_medium=DFXGeneric&utm_campaign=twr
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 98.08%, while traders in France 40 are at opposite extremes with 89.09%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/spZkZaPsuM
  • AUD/USD Technical Analysis: September Floor Back Under Fire - https://www.dailyfx.com/forex/technical/home/analysis/aud-usd/2019/09/23/AUDUSD-Technical-Analysis-September-Floor-Back-Under-Fire.html?utm_source=Twitter&utm_medium=Spivak&utm_campaign=twr #AUDUSD #technicalanalysis
Dollar’s Indecision Likely to End with FOMC, NFPs, 1Q GDP

Dollar’s Indecision Likely to End with FOMC, NFPs, 1Q GDP

2014-04-26 23:09:00
John Kicklighter, Chief Currency Strategist
Share:
Dollar’s Indecision Likely to End with FOMC, NFPs, 1Q GDP

Fundamental Forecast for Dollar:Bullish

  • The specter of a downturn in risk trends grows increasingly corporeal – and the dollar stands ready to take off if it does
  • Meanwhile, rate forecasts will be revived this week between economic health updates (1Q GDP and NFPs) and the FOMC
  • Have an opinion on the US Dollar? Trade it via Currency Trading Baskets

FX and capital market traders are anxious for activity. Stability is one thing, but the quiet that currently hangs over the markets carries the hallmarks of extraordinary complacency and an inevitable reversal to the opposite extreme. Given the markets lean and positioning over the years, the more charged scenario would be one where risk aversion and deleveraging unfold. That would be a boon for the greenback as its safe haven status is revived under the stress. But even if we are kept to wait for the return to risk engagement, there will be plenty of the US economic docket to keep the dollar occupied – including a FOMC decision, 1Q GDP release and April NFPs.

Always starting with the fundamental theme with the greatest overall potential over the market, risk trends are the first consideration for trading starting the next week. Already tepid, activity levels this past week fully collapsed with the holiday liquidity drain and never recovered. Now, among mature capital market trends and extremely low volatility and participation levels, we are finding measures so excessive that complacency is no longer an option. Perhaps the starkest measure is that of FX-based volatility. While the equity-based VIX is steady since the start of the month, its currency-sourced counterpart dropped another 20 percent (to 5.73 percent) to a seven year low – and only marginally off a record. Realized – also termed ‘actual’ – volatility is itself at a multi-decade low.

The wait for a rebound in risk trends has been a frustrating one. Bullish or bearish, sentiment can engage the market and offer meaningful trend – rather than the stunted chop we have dealt with. Looking back, there have been a few notable attempts to revive the optimism run, but circumstances of participation, leverage and exposure have consistently seen the move die. This tells us that to engage a lasting market-wide, sentiment-based move; it may have to be a deleveraging of risky exposure.

In the annals of history, the greatest extremes are typically the first to reverse. If that is the case with risk trends, the circumstances for FX activity measures may prove the spark for a more systemic change in attitude. A currency market-based increase in activity would likely favor the dollar – as volatility is associated to concerns of safety – but the most reliable driver for the benchmark would be a risk aversion move that spanned asset classes and investor type. The US docket this week is particularly well suited to get the ball moving.

Under normal circumstances, the expectation of a major release or event that can materially change investment conditions often encourages the trading ranks to sit on their hands. The schedule this week is spread out, but the market is unlikely to hesitate should Wednesday’s releases hit the right key. After earlier releases of US housing data and sentiment survey, the top listings come Wednesday with the release of the release of the first quarter growth (1Q GDP) report at 12:30 GMT and FOMC rate decision at 18:00 GMT.

For fundamental impact, these two indicators offer a clear view of the economic health of the world’s largest economy and the monetary policy assistance it is receiving. Even if they fall short on stirring the broader ‘risk on risk off’ mentality, they will still prove weighty measures for interest rate expectations – the other dominant theme for the dollar. This past week, medium-term Treasury yields have regained lost ground as rate expectations stabilized (though there is also a consideration that Treasuries will rise – and yields fall – as safety demand induces a bid). As we move closer and closer to the first rate hike, its time frame – whether further or nearer – should become clearer. As we see the timing take shape, traders will be more willing to better place the greenback in the ranks of rate forecasts with its major counterparts. – JK

provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.