Hello fellow traders,
Did anyone watch Donald Trump’s speech State of the union? He highlighted some important issues like: Unemployment is down, job growth as increased and a tax cut for businesses. This all sounds wonderful, but yet the dollar is falling. Does anyone know why or what is driving the dollar down? Is this due to Japan’s growth?
From Technical point of view, The Dollar weakness is temporary. It very much resembles with Bitcoin mania. The Bitcoin went to 18000 range and then crashed. Similarly this market phase for Dollar is also temporary. Technically there are huge falseouts before huge reversals. This can be seen like Brexit effect on GBP , GBP has recovered 70% of the Brexit loss. Summarily USD will soar sooner or lator.
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Possibly, but I think it was the apparent strength it has shown since the Banker’s debacle which has been temporary.
Just Take a look at the EURUSD or GBPUSD on the monthly scale - to see the extent of the distortion which took place back then.
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The US dollar weakness is a nice example of how marginal changes to expectations are often more important to markets than absolute changes.
For example, on an absolute basis, regarding interest rate differentials, other currencies should be weakening, NOT strengthening vs. the dollar.
The Fed hiked rates three times in 2017, and is forecasted to hike (at least) three more times in 2018.
No other major central bank is even close to doing this.
Not the ECB, especially not the BOJ.
However, the market has already priced in these US rate hikes. This means it’s not the rate of change that is currently driving currencies, it’s the rate of change of change.
The market views the chances of the ECB and BOJ becoming incrementally more hawkish as greater than the chances of the Fed becoming more hawkish.
The market is signaling that there’s a better chance we get a hawkish surprise from the BOJ (“we will start reducing QE”) or the ECB (“we are ending QE now!”) than we do from the Fed ("we’re going to hike rates 5 times this year).
Whether these BOJ or ECB scenarios will actually happen, we’ll have to wait and see. I am skeptical.
Until this marginal outlook changes, either with more aggressive hawkish jawboning from the Fed, or a sustained surge in inflation or employment growth, then the dollar will remain weak.
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Hi Nirmalfx,
You have a point there. Thank you for your feedback.
Yes I thought too perhaps the banks debacle
Hello ForexGump,
Thank you for you feedback and explanation. Much appreciated. Sam