About the US Dollar


NEXT FED CHAIR - I've been reading a lot about how the US Dollar run is over and how it will be back to more of the same US Dollar selling for the remainder of the year. There are certainly legitimate arguments to be made for a weaker Buck and the most recent one has to do with the next Fed Chair. If President Trump truly wants to see a lower US Dollar as per his soft Dollar policies, it wouldn't make sense to appoint a hawkish leaning Fed Chair to replace Yellen. And so, if Trump confirms this view and goes ahead with a dovish appointment like Powell, we could very well see the Buck come back under pressure in 2017, on that story alone.

cartoon october 5

BE CAREFUL THERE - But as I break it down, I still don't believe this necessarily to be the case. It's true, on the surface, Powell would be bearish US Dollar given his outlook. At the same time, if it's Powell or any other dovish leaning figure that steps in, it won't matter if inflation is shooting up and the pressures to keep rates lower are no longer pressures that can be prioritized. After all, central bankers shouldn't be hawkish or dovish. They should just be central bankers and react accordingly based on what the role necessitates. If market conditions warrant higher rates, it won't matter. Now of course, there are many exceptions here, but at the same time, when we're coming out of the massive monetary policy experiment we've been in and have already initiated the normalization process, I'm thinking it will be far more difficult to have the luxury of being dovish, which will surprise many out there.

Don't over-represent yourself and stay off the field of play as much as possible.

GEOPOLITICS - Now there is another argument that's being made for a weaker US Dollar and that's the argument that geopolitical tension with North Korea will make the US Dollar less attractive. But here as well, I have a hard time buying this argument. Again, we have seen the US Dollar under pressure this year as things have heated up on that front. But nothing has really happened and ultimately, if things ever do get to the point where they are truly unsettling, the US Dollar will benefit, even if the US is front and center in the conflict, as the US Dollar remains the most attractive flight to safety currency in the world. So while we could see the US Dollar sell off, I wouldn't be placing too much stock in the arguments for Dollar weakness outlined here in today's report. For the time being, I maintain my bullish outlook for the Buck over the coming days and will be looking for the Euro to drop back to that measured move head and shoulders neckline objective at 1.1555.


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