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DXY 2-Hour Chart

US DOLLAR FORECAST: BULLISH

  • US Dollar[1] range-bound as investors mull US-China trade deal, Brexit path
  • Incoming US economic releases may fall short of the markets’ expectations
  • Flimsy “phase 1” trade pact, growth fears may drive haven USD[2] demand

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The US Dollar has idled in a narrow range since mid-October. That follows a pullback from the early-September swing high, which appears to reflect ebbing haven demand amid swelling hopes for a US-China trade deal and a seemingly reduced risk of a “no-deal” Brexit outcome.

The reversal proved to be relatively short-lived as the markets’ rosier disposition pushed 2020 Fed rate policy expectations away from dovish extremes. That stemmed USD selling, reminding investors that it still offers a meaningful yield premium of about 150 basis points on average relative to its top counterparts.

Subsequent standstill appears to reflect uncertainty about whether this more positive narrative has true basis. A US-China trade accord remains nonexistent despite soundbites from Washington and Beijing claiming it is nearly complete, and Brexit is an enigma until the UK general election on December 12.

US ECONOMIC DATA MAY DISAPPOINT FINANCIAL MARKETS

The week ahead offers some notable data points to show where the global business cycle stands against this backdrop. ISM manufacturing- and service-sector surveys, November’s jobs report and the University of Michigan’s closely-watched consumer confidence gauge are all due to cross the wires.

Leading PMI data suggests US growth has stabilized somewhat, putting nonfarm activity growth the fastest in four months in November. That seems like a hollow victory however considering the base from which the improvement is occurring: nonfarm activity growth is near-standstill.

Meanwhile, data from Citigroup suggests US economic

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