News & Analysis at your fingertips.

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.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
Oil - US Crude
Mixed
Wall Street
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
Mixed
GBP/USD
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
USD/JPY
Bullish
More View more
Real Time News
  • *Reminder: Weekly Strategy Webinar tomorrow morning at 8:30am EST on DailyFX - https://t.co/lxd5fZnn4H Mid-Week Market Check Up with IG on Wednesday at 9:30am EST - https://t.co/8SFBJxNZrA
  • Do you know how to properly Identify a double top formation? Double tops can enhance technical analysis when trading both forex or stocks, making the pattern highly versatile in nature. Learn more about the double top formation here: https://t.co/t9Flsqcxo9 https://t.co/q0tVjDEr0v
  • The US 10-Year Treasury yield has advanced for four consecutive weeks for the longest such stretch since September 2018. Yet this isn't just a US issue. Yields are up globally. Perhaps most impressive is Japan's 10yr adv... https://t.co/78deo7rOa8 https://t.co/SjXYClItFC
  • Rising Treasury yields inspired a broad selling in global equities last week. The longer-term outlook remains positive however on the back of the reflationary theme, strong earnings and vaccine progress. Get your market update from @margaretyjy here: https://t.co/LLlhEpmJxI https://t.co/bJebULtjLG
  • Dealing with the fear of missing out – or FOMO – is a highly valuable skill for traders. Not only can FOMO have a negative emotional impact, it can cloud judgment and overshadow logic. Learn how you can control FOMO in your trading here: https://t.co/lgDf5cVYOn https://t.co/kuqShllQFp
  • Although the longer-term technical outlook for AUD remains skewed to the topside, recent developments suggest the commodity-sensitive currency could lose ground against USD and JPY. Get your market update from @DanielGMoss here: https://t.co/Rl1h8WdXwp https://t.co/49RKx86FzG
  • ECB policymakers were out in force last week, saying they were watching Eurozone government bond yields, but yields rose anyway, and that’s positive for $EURUSD and the Euro crosses. Get your market update from @MartinSEssex here: https://t.co/nJdh9dA1HM https://t.co/peLh7zTTiz
  • The Federal Reserve System (the Fed) was founded in 1913 by the United States Congress. The Fed’s actions and policies have a major impact on currency value, affecting many trades involving the US Dollar. Learn more about the Fed here: https://t.co/ADSC4sIHrP https://t.co/vs7ypHHwya
  • The GBP rally vs USD came to an abrupt end and reversal; this sets cable up for more selling in the week ahead. Get your market update from @PaulRobinsonFX here: https://t.co/Ee9PSppnd2 https://t.co/uaiCiEHBMs
  • What are some trading takeaways from 2020, as we jump into the new year? Find out with your free guide here: https://t.co/e7udCTJlmf #DailyfxGuides https://t.co/OXUgYIl2ru
Dollar Suffers a Move Earned Through Counterparts

Dollar Suffers a Move Earned Through Counterparts

John Kicklighter, Chief Strategist

Talking Points:

  • The DXY Dollar Index suffered its worst single-day loss in four months, an equally-weighted USD index its worst in 19 months
  • Data supplied traders an easy explanation, but themes like rate forecasts and risk trends matter far more
  • Thursday's tumble was more likely the reflection of remarkable strength for key counterparts like the Pound and Aussie

See my views on the more systemic risks and the shorter list of opportunities the Dollar faces in the fourth quarter forecast that I wrote with Strategist James Stanley. Find the outlook for the benchmark and many other currencies, indices and commodity on our Trading Guides page.

Know What is Driving the Market to Determine if It Continues

There is little denying the remarkable move from the US Dollar this past session. From the most popular, trade-weighted DXY Index, the biggest drop in four months was an inconvenient turn following a tentative technical bullish breakout. This was essentially the reflection of the EURUSD which provocatively lost traction at August's swing low of 1.1300. Does a technical alignment offer any greater conviction to its next move? Or perhaps the defining feature is intensity. If that is the case, an equally-weighted Dollar index saw the largest single-day tumble since March 14, 2017 - and its technical backdrop wasn't too shabby either. A significant move can be sign of a more systemic move in the making or it can simply reflect a brief spat of volatility that fades as quickly as it appeared. What matters in truly estimating the intent for run is the motivation for the move. Response to a scheduled data release or unexpected news update represents a limited duration charge that would carry trend so long as it taps a much more systemic theme. Yet, if the Greenback's slide draws power directly from one of its deeper wells from the start, the capacity of a bearish reversal can prove far more reliable.

Daily Chart of the Equally-Weighted Dollar Index

Dollar Suffers a Move Earned Through Counterparts

The Systemic Themes at the Root of the Dollar's Bearings

So, if we are looking for the long rudders on the world's most liquid currencies, what is it we should keep tabs on? One of the most productive tail winds the Greenback has drawn on over the past years is the unique appeal of the United States' monetary policy pace. The Federal Reserve is still committing to a tempo of rate hikes (a fourth in December and three in 2019) that no other major central bank can come close to matching. That bearing has eased off over the past few months but it hasn't deflated significantly and certainly not just recently. Perhaps that signal for a shifting backdrop is soon to come. Of course, the Dollar's carry trade status is only one part of the equation. There is also the general appeal of pursuing a carry trade. In a strong tide of risk appetite, the market will seek out any sliver of yield it can possibly find. The Dollar will provide in that scenario with a benchmark range of 2.00 to 2.25 percent. Then again, a sudden rise in fear can throw off the equilibrium established between the market value afforded the currencies and assets relative to the actual return they provide. The concept of risk poses an interesting dichotomy for the currency. While it is an unmatched safe haven in extreme financial fear, it is also a benefactor of robust conditions whereby its yield promotes an advantage. Yet, if speculative trends are too strong, other central banks will start to close the gap the Dollar enjoys (and much of this is speculative anticipation rather than actual yield). And, anywhere in between, the extremes will diminish the currency's inherent advantage.

Daily Chart of DXY Dollar Index and Implied Yield for Fed Funds Rate December 2019

Dollar Suffers a Move Earned Through Counterparts

Benefit and Detriment of Being the Most Liquid Currency

If we consider the moderate rebound in risk trends over the past three trading sessions and an improvement (albeit small) in the perception of trade wars, perhaps there was something more meaningful to work with for bears. High level trends can certainly arise from sentiment and monetary policy, but changing those trends is a tall hill to climb. Besides, there may be a more prominent influence at work against the Dollar: its role as a benchmark. The US currency is the world's most liquid asset by far. This can work in its favor as it absorbs safe haven flows and investment assets more readily. Yet, it can also prove a burden under the wrong conditions as well. If the USD is stagnant on its own fundamental merits and its largest counterparts mount rallies, the Greenback can in turn lose ground. That is what happened this past session. The Euro and Yen are the second and third most liquid currencies respectively, but they were choppy and weak respectively. That said, the subsequent two counterparts - Pound and Australian Dollar - posted impressive rallies. The Sterling was catalyzed by a hawkish Bank of England (BOE) rate outlook while the Aussie Dollar found help from local data and speculative appetite. Can this indirect run continue? These events are not well established for trend. Then again, the Euro and Yen could easily swoop in with their own participation. What is driving the Dollar and how should we measure its performance? We discuss that in today's Quick Take Video.

Bank of International Settlements Currency Usage Measure

Dollar Suffers a Move Earned Through Counterparts

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

DISCLOSURES