US DOLLAR FORECAST – USD PRICES COULD FALL ON SUSTAINED FED BALANCE SHEET GROWTH & LINGERING RISK APPETITE FROM THE SIGNED PHASE ONE TRADE DEAL
- The US Dollar[1] continues to rebound into the new decade with the DXY Index climbing nearly 1.5% higher year-to-date, but USD[2] prices still trade roughly 2.0% below the October 2019 peak
- Fundamental outlook for the US Dollar remains unfavorable considering the Fed plans to keep inflating its balance sheet while markets grow frothy in light of an absence of volatility
- Diminishing US Dollar safe-haven demand could endure amid receding recession probabilities and recovering global GDP growth outlook owing to the newly signed US-China trade deal
USD price action just recorded back-to-back weekly gains according to performance recorded by the US Dollar Index (DXY[3]). The US Dollar has churned about 1.5% higher so far this year, which follows the Greenback’s 3.5% drift lower from October 03 to December 31 that marked a 5-month low.
Future potential upside in the US Dollar could be limited, however, with USD price outlook[4] lacking bullish conviction in light of dissipating fundamental catalysts that have previously helped propel the US Dollar higher.
A pertinent theme likely contributing to the US Dollar’s dominance last year was demand for safe-haven currencies[5], though this has faded over the last few months alongside perceived recession risk.
DXY PRICE CHART – US DOLLAR INDEX & VIX INDEX OVERLAY: DAILY TIME FRAME (APRIL 2019 TO JANUARY 2020)
Chart created by @RichDvorakFX[6] with TradingView[7]
The unwinding of priced recession probabilities and corresponding retracement in market uncertainty – or volatility – likely explains ebbing USD demand and the string of weakness recorded by the US
