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
Bullish
GBP/USD
Bullish
USD/JPY
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Bitcoin
Bearish
More View more
Real Time News
  • RT @Tony_Nyman: Morgan Stanley #FX trades of the week Buy NZD/CAD at market for 0.8800. Stop 0.8220 Sell THB/KRW at market for 37.0. Stop 3…
  • UK General Election - majority odds...h/t @Oddschecker #gbp #sterling @DailyFX https://t.co/lc6an3ErVW
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.57%, while traders in France 40 are at opposite extremes with 84.00%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/lCP80FZFD8
  • Commodities Update: As of 08:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 0.14% Gold: -0.53% Silver: -0.78% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/EGNbk1OlkQ
  • RT @TradeFloorAudio: UK Bookmaker Paddy Power cuts the odds of a Conservative Party majority at upcoming #GE2019 from 4/7 to 4/9 .... It ha…
  • Forex Update: As of 08:00, these are your best and worst performers based on the London trading schedule: 🇬🇧GBP: 0.41% 🇳🇿NZD: 0.12% 🇪🇺EUR: 0.09% 🇨🇭CHF: -0.02% 🇦🇺AUD: -0.02% 🇯🇵JPY: -0.17% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/0Z5fYqqkex
  • LIVE NOW: Join Market Analyst @DavidCottleFX for a look ahead at the major economic data which will drive Asia Pacific markets in the coming seven days. Register here: https://www.dailyfx.com/webinars/985612483?CHID=9&QPID=917720
  • Indices Update: As of 08:00, these are your best and worst performers based on the London trading schedule: Wall Street: 0.19% US 500: 0.17% Germany 30: 0.11% France 40: 0.07% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/GLPREk9GG5
  • Why financial market traders must monitor both monetary and fiscal policy?Find out from @MartinSEssex here: https://t.co/Fkzk88Y5gm https://t.co/BCtPSUCBO9
  • LIVE IN 30 MIN: Join Market Analyst @DavidCottleFX for a look ahead at the major economic data which will drive Asia Pacific markets in the coming seven days. Register here: https://www.dailyfx.com/webinars/985612483?CHID=9&QPID=917720
US Dollar Rally Will Stall Without a Spark

US Dollar Rally Will Stall Without a Spark

2014-05-17 03:01:00
John Kicklighter, Chief Currency Strategist
Share:
US Dollar Rally Will Stall Without a Spark

Fundamental Forecast for Dollar:Neutral

  • Though US Treasury yields were in retreat this past week, the move does not likely reflect fading Fed expectations
  • There is limited impetus from the docket for a big ‘risk’ breakout this week, but a surge in sentiment doesn’t require data
  • Have an opinion on the US Dollar? Trade it via Currency Trading Baskets

The US Dollar managed to turn a close call test of 14-month lows into an impressive rebound over the past two weeks. Yet, without a strong foundation for bulls to drive from, a ‘rebound’ may be all the greenback is able to muster. There are two fundamental themes on which the currency will rely to decide its fate: the bearings for global risk trends and the market’s rate expectations. Either could turn the tides for the benchmark and global capital markets with motivation. However, the potential and probability between the two remain uneven.

Relative monetary policy is currently the most productive fundamental driver behind the dollar – for better or worse. Over the past weeks, we have seen a FOMC rate decision, a number of Fed speeches and round of data that have reinforced the time frame for the central bank’s first rate hike (mid-2015). Despite this, Treasury yields have stumbled. The rate on the favorite 10-year Treasury note dropped to a near seven-month low while the 2-year yield – more sensitive to the beginning of the rate hike regime – has similarly retreated, just not with the same degree of attrition.

Forecasts in Fed Fund futures (derivatives used to gauge central bank moves out into the future) are similarly skeptical of the projected path for rate hikes. Looking out the curve, the first hike is not fully priced in until October of 2015. Yet, as with anything in the FX market, the dollar’s situation is relative. While a late-2015 hike is a weaker than guidance, it would still mark a more hawkish bearing that the Euro (ECB pursuing stimulus), the Yen (BoJ not yet winding down its open-ended QE) and many other counterparts. From this comparative evaluation, we find that European and Asian yields were also in retreat.

Moving forward, the market will intensify its speculation for the Fed’s policy path. There are plenty of scheduled Fed speeches to gauge timing, but data is particularly light in this regards. It is unlikely that the group take a hard turn from their march towards the end of QE3 and the eventual first move to tighten. That means, the market is more likely to feel the tug of a mid-2015 time frame teasing yields and the dollar. More heat may come indirectly from more significant policy swings from the currency’s major counterparts. The ECB push towards June stimulus is a key source of strength for the greenback via EURUSD, so the Eurozone flash PMI readings will carry weight. So too will the UK CPI figures with the pound enjoying a significant rate forecast premium over its US counterpart.

While Fed forecasts will remain an engaged fundamental subject for the dollar, it is important to keep tabs on the other primary driver which may be dormant now but could quickly turn explosive with little warning: risk trends. Complacency continues to grow with exposure to ‘high risk / high yield’ assets extreme, leverage use at records and hedge exposure virtually nonexistent. These are the ingredients of a catastrophe for the financial markets, but masses can remain blissfully ignorant so long as a pullback doesn’t start to incur amplified losses. Yet, with volatility indicators already at natural lows (risk premium fully absorbed), benchmarks like the S&P 500 struggling for meaningful gains, economic activity slowing and interest rates gradually trending higher; it is only a matter of time before this volcano erupts. – JK

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

DISCLOSURES

News & Analysis at your fingertips.