Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Liftoff Setback Leads to U.S. Dollar Pullback

Currencies / US Dollar Aug 25, 2015 - 02:47 PM GMT

By: AnyOption

Currencies The US dollar has experienced a tremendous rally over the last year as the end of quantitative easing and prospect of interest rate normalization led to upside momentum in the currency.  Expectations were largely set for a September rate hike with many FOMC voting members forecasting two rate increases before the end of 2015.  However, with recent inflation data and the growing emerging market turmoil, the Federal Reserve might be forced to hold off with its most well intentioned plans, sapping downside strength and building the case for a deeper technical pullback in the US dollar index.


The Fundamental Picture

The US economy has largely experienced a lopsided recovery over the last year as certain areas outperform while others underperform.  The wave of dollar strength largely impacted the export economy and industrial production numbers which continue to stagnate.  While the housing sector continues to show robust gains, consumption has proven a mixed big and most consumers have been keep the purse strings tightened.  Overwhelmingly, the prevailing conditions show that the economy has been re-leveraged after a period of deleveraging that followed the last financial crisis. 

Instead of subprime home loans, the new normal for the American economy is subprime auto loans.  The student loan bubble continues to grow despite a swelling number of delinquent borrowers.  Moreover, the newly minted shale oil and gas industry looks set to see its own fortunes decline, with the potential to trigger a credit event across the high-yield debt space that bleeds into corporate debt.  However, the Federal Reserve has largely ignored the risks of operating at the zero bound and the misallocation of resources that arises as a result.  Nevertheless, the real problem facing the Federal Reserve is the lack of inflation.

With the consumer price index and other measures such as PCE inflation still well below the 2% targeted by the Central Bank, raising interest rates in a low inflationary environment could potentially trigger more problems in the economy.  Even though employment has been heralded as the key statistic the Federal Reserve is following, with no anchoring of inflation, liftoff will be both challenging and damaging.  In the meantime, expect the Federal Reserve to remain data dependent in its decision-making while remaining conscious of the external situation, especially the turmoil unfolding in emerging markets.

The Federal Reserve looks poised to postpone any potential rate hike until December at the very earliest after data revealed earlier in the month largely disappointed the Central Bank’s forecasts.  Even though slack in the labor market has abated, labor force participation is ebbing near multi-decade lows, complicating the outlook.  Maximum employment and reaching the inflation target are the two key metrics for the Central Bank.  With no sustained rebound in inflation, raising interest rates could choke off remaining growth, further denting the recent string of losses in the US dollar index and clouding the outlook further.

The Technical Take

From a technical perspective, the outlook for the US dollar remains to the downside as the US dollar index experiences an increasingly sharp pullback following nearly a year of upside, with the index rising to the highest level since 2003 earlier in the year before retreating.  First quarter GDP numbers sent the index tumbling to the downside where it has remained as the Federal Reserve outlook remains bleak.  With the probability of a September hike now firmly below 30%, the dollar retrace is now in full swing as evidenced by the break of the key technical support level at 93.12 yesterday, indicating the possibility of sustained downside in the pair.  Adding to the bearish case is the fact that the US dollar index remains below both the longer term 200-day moving average and shorter term 50-day moving average after the losses of the last few sessions. 

While the dollar is attempting a relief rally after yesterday’s losses, it is likely to prove short-lived considering the growing capitulation to the downside.  Since reaching the March highs, the index has been setting up in a descending triangle pattern, evidenced by the consolidation between the prevailing downtrend line and support at 93.12.  While yesterday’s price action did not result in a downside breakout, a 30-60% retracement of the total move over the last few years would indicate a pullback ranging from 87.00-93.00.  Basic technical analysis conventions expect that if the longer-term uptrend is set to continue, a downward correction would be necessary before a resumption of the trend.

The Outlook

The case considering the confluence of fundamental and technical analysis factors is acutely skewed to the downside as the Federal Reserve is forced to rethink its normalization strategy as the broader US economy struggles under the weight of a stronger dollar.  Further weakness is expected as interest rate hike expectations are pushed further into the future while the dollar index undergoes as a correction after the last year’s momentum higher.  Ideal Put positions will be initiated above the key support line at 93.12.  A technical pullback as deep as 87-93 is likely before the prevailing uptrend resumes, adding to the downward bias in the pair.  However, should inflation rebound and employment continue to make improvements, a rebound in the US dollar index could be sharp and quick, necessitating call positions once the correction has subsided.

Anyoption™ is the world's leading binary options trading platform. Founded in 2008, anyoption was the first financial trading platform that made it possible for anyone to invest and profit from the global stock market through trading binary options.

Our goal here at Market Oracle is to provide readers with valued insights and opinions on market events and the stories that surround them.

Website anyoption.com

© 2015 Copyright  Anyoption - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in