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USD Forecast: US Dollar Hinges on Virus Fear, Sentiment & Powell

USD Forecast: US Dollar Hinges on Virus Fear, Sentiment & Powell

2020-02-08 14:00:00
Rich Dvorak, Analyst
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US DOLLAR FUNDAMENTAL FORECAST LOOKS TO FED CHAIR POWELL SPEECH, CONSUMER SENTIMENT DATA & CORONAVIRUS DEVELOPMENTS

  • The US Dollar notched its highest close in 17-weeks driven in part by liquidity flows as traders move into safe-haven assets and Fed balance sheet growth decelerates
  • USD price outlook for next week likely hinges on the latest coronavirus developments out of China, US consumer sentiment data and commentary from Fed Chair Powell
  • EUR/USD and AUD/USD bears set their sights on multi-year lows amid widespread US Dollar outperformance against other major currency pairs

The DXY Index – a popularly referenced basket of key US Dollar currency pairs – has climbed an impressive 2.3% so far this year to the 98.70 price level. A big breakdown in EUR/USD, which comprises over half of the DXY Index, has helped fuel broader US Dollar strength as the American economy continues to outperform.

Nonfarm payrolls data released early Friday beat expectations and underscored the solid US jobs market, which exacerbated the slide in spot EUR/USD that began in the previous trading session on the back of dismal German data.

EUR/USD MIXED
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 4% -7% -4%
Weekly -6% -5% -5%
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Spot AUD/USD price action has meanwhile set fresh decade lows amid sustained concern over the novel coronavirus outbreak in Wuhan, China.

Downside in the Aussie relative to the US Dollar has potential to endure if it is revealed that Chinese trade and business activity will remain on hold in aim of containing the coronavirus.

Correspondingly, this development could keep providing a positive tailwind to the US Dollar on balance as forex traders seek out safe-haven currencies.

CHART OF TOTAL ASSETS HELD BY THE FEDERAL RESERVE – FED BALANCE SHEET

USD Forecast US Dollar Fed Balance Sheet Chart

Looking to domestic fundamental factors that stand to dominate the direction of the US Dollar next week we find that Fed Chair Jerome Powell will be providing his semi-annual update to Congress beginning at 15:00 GMT on February 11 and February 12.

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The leader of the Federal Reserve is expected to highlight an overall solid US economy and may help reinforce bullish USD price action recorded so far this year. Also, Powell will likely field questions over recent Fed balance sheet growth, which is arguably a bearish fundamental headwind that the US Dollar faces.

CHART OF CONSUMER SENTIMENT – UMICH SURVEY OF CONSUMERS

USD Forecast US Dollar Chart of Consumer Sentiment Historical Data

The monthly consumer sentiment report release from the University of Michigan’s Survey of Consumers – due this coming Friday, February 14 at 15:00 GMT – could also exert considerable influence on the US Dollar.

Preliminary January data for US inflation and retail sales are also set to cross the wires at 13:30 GMT on February 13 and February 14 respectively, which might spark notable reactions in USD price action as well.

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That said, US economic indicators have generally topped market expectations as of late. Further evidence of this trend next week would likely bode well for the US Dollar.

Disappointing datapoints revealed next week could hinder possible upside continuation on the other hand. Lastly, event risk and high-impact data releases scheduled abroad throughout the upcoming trading week (detailed on the economic calendar) also hold potential to weigh on the US Dollar indirectly.

Keep Reading: US Dollar Setups Post-NFP for EUR/USD, USD/CAD, USD/JPY & More

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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