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How Much Further Can the Dollar, Euro, Yen Run on Monetary Policy?

How Much Further Can the Dollar, Euro, Yen Run on Monetary Policy?

John Kicklighter, Chief Strategist

Talking Points:

• The Fed is closing in on a first rate hike while the BoJ and ECB are fully engaged in open QE

• Monetary policy remains the most effective trend driver for the Dollar, Euro and Yen trends

• However, as the markets adjust to expected and known policies, its influence over momentum wanes

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A 3,500-pip run for EURUSD over 10 months and 4,300-pip trend over two years for USDJPY both draw heavily from monetary policy. Whether policy officials' direct intentions or not, changes in policy bearings - and especially divergent efforts - generate significant change in exchange rates. For the Dollar, a march towards hikes and normalization has launched the Dollar higher. Alternatively, QE programs from the ECB and BoJ have driven the Euro and Yen sharply lower over different time frames. Moving forward, these fundamental currents will continue to push the market; but their potential for momentum and volatility are moderating as trends mature and expectations are efficiently priced. How much more should we expect the Dollar, Euro and Yen market to squeeze from this important primary trend moving forward? That is the topic of today's Strategy Video.

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