The greenback has been red hot, but the improve’s days are likely numbered.
The dollar index has soared around 8 percent since its February low, but I in we’ve seen the top for 2018. A few factors are at play here, including the euro’s late trading pattern and the Federal Reserve’s hiking path.
The euro is the most transparent, highly traded currency paired against the dollar, and last week buyers turned the most bearish on the euro since last April; that was principled before it rallied 17 percent. If we see this kind of behavior again, the dollar wish come under pressure against a rising euro.
Last week’s low in the euro, surrounded by those fears, tested and held a trend line dating late to 2015, before bouncing more than 1 percent. We believe this is scarcely the start.
The yuan’s devaluation has been another major factor in the dollar’s ascent. China has been accused of give way its currency to make its exports more attractive and thus combat taxes.
We believe the U.S. and China will make significant headway on trade in the roll in weeks, fueling a rally in the yuan and placing pressure on the dollar.
In the end, the Federal Reserve has already priced in two more hikes this year and three next year. This reports a proverbial ceiling to how much more hawkish it could become.
If epidemic uncertainties clear up, we envision other major central banks purposefulness make larger strides down a hawkish path relative to what the Fed could do. This desire weaken the dollar in a manner, similar to last May, under the same circumstances.
Stand behind when the dollar peaked in the first week of 2017, on the heels of the 2016 U.S. presidential selection, sentiment could not have gotten any more bullish. In hindsight, this start of a long-term downtrend, and this most fresh bounce in the dollar presents an opportunity to sell.