The US Dollar has proven resilient in the months since US President Trump declared that “trade wars are good, and easy to win.” It is possible investors ignore this enormous burden until it starts to have its tangible impact on the economy – but speculative markets rarely wait. Traders will be forced to weigh concerns about the US-China trade war with the prospect for tighter monetary policy from the Federal Reserve. The Fed’s intentions have been well telegraphed for years. Therefore, while the full extent of their ultimate tightening proram has not been totally priced in; much of the forward value is likely accounted for in its current levels.
DXY[1] Index Price Chart: Weekly Timeframe (October 2015 to September 2018) (Chart 1)
As we move into the close of what’s become a volatile year for the US Dollar, we’re faced with two possible trends to work with. Either the 13-month down-trend that lasted into this February as the Dollar dropped by -15%, even as the monetary backdrop was seemingly tiled in the US Dollar’s favor. Or, we have the two-month up-trend that’s largely stalled out while flagging a series of bearish breakdown signals throughout Q3.As we move into Q4, the former seems a more attractive path forward, particularly given the fundamental context with which this move has taken place.
See the complete Q4’18 US Dollar forecast as well as forecasts for the other major currencies, equities, Gold, and Oil.[2]
--- Written by John Kicklighter, Chief Strategist and James Stanley, Strategist
