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USD Index in retrace?


Mercury

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To cap off the individual pairs the Dollar index seems to also be breaking out from an ending diagonal to the downside with strong NMD and just short of the Wave 3 high from early March 2015 and another high point at end Nov 2015.  A significant turn here puts 2 scenarios on the table but more on that later as this move develops (or not...)

 

 

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I am pretty shore everyone has been stunned including without doubt the FED and all EM currency traders etc with the rocket storm of the dollar, now the worst thing that could happen for dollar bulls is no rate hikes in september which some are pricing in a 90% guarantee, for it would still be a surprise if they did hike rates but that is my own personal opinion. Approaching an interesting fib level around the monthly 61% fib level. if we do reject this we could be seeing a deeper retracement, but so far everyone is just buying on the dips, therefore we may just keep going further for a while longer.



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Great Article from FT Alphavile well worth the read, pasted it below.

It’s the USD’s world, we just get to trade in it

A strongish durable goods orders release, and a perception that easier fiscal policy is coming all over the world are cited as the catalysts for yesterday’s lurch higher in Treasury yields, but the underlying cause is that after 10year yields halved between the end of 2013 and mid-2016, there were a lot of longs which are still being flushed out. Positioning isn’t going to stand in the way of bond prices falling which in turn is the fuel for the dollar’s advance. DXY is testing 102, a level last seen in March 2003, and we expect a further 6% rise over the next few months. In broader trade-weighted term, the dollar is now within 2% of the 2002 peak which seems sure to break in the coming days, taking the dollar back to levels not seen since 1986.

Do please, however, spare a thought for the Indian rupee, which India’s massive cash scrapping operation can’t be helping; the Japanese yen, which, as Kit also says, “has fallen by over 7% against the dollar since the election, more than any other Asian currency, beating only the Turkish Lira and Mexican Peso more widely”; and other Asian currencies under the cosh.



Finally, here’s a longer term framework for USD strength, also from HSBC, for those who want some semblance of control while stuck in The Forex:

The building blocks of President-elect Donald Trump’s policies point to USD strength in the near-term. We believe politics is the dominant driver to FX, but uncertainty over what these policies may look like has made it problematic for the FX market to price the election outcome with conviction. However,
the process of crafting an FX view driven by US politics hinges on four key areas:

1. Fiscal policy (USD positive): We believe an easing of fiscal policy would be USD positive as the boost to interest rates would dominate the adverse currency implications of higher inflation and a wider current account deficit.

2. Overseas income repatriation policy (USD positive): A 10% repatriation tax as part of a comprehensive tax reform package should encourage some modest degree of inflows and be USD positive.

3. Trade policy (ambiguous USD vs G10, stronger USD vs EM): Instigating a trade war would likely be damaging for US growth and foster a more dovish Fed. But the USD would likely strengthen against EM, especially those targeted by higher tariffs.

4. Immigration policy (USD negative vs G10): Policy steps that could reduce the supply of labour to the US economy would be growth negative

The currency market has so far concentrated its energy only on fiscal policy. The market will also need to take account of developments in other aspects of policy but we believe they point to USD strength over all.
In time, fiscal expansion may become a USD negative if the market belatedly worries about rising debt levels. This could then join any USD drag from the structural headwinds of a trade war or aggressive immigration policy. But such dynamics are likely to take time to unfold, if at all, and so our forecasts dwell instead on near-term strength for the USD.

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