AMERICAN DOLLAR FORECAST: NEUTRAL US
Dollar resistance to resistance despite easing monetary policy easing Fed markets may be ready to understand why policy easing approaches could allow a defensive repositioning to boost demand for US dollars.
Check out the latest technical and fundamental forecasts in US dollars to find out what will drive down prices in the third quarter!
The financial markets were treated much the same way as last week with a Federal Reserve. President Powell’s comments in his semiannual testimony to Congress, as well as the minutes of the June meeting of the FOMC Policy Committee, seemed to confirm that at least some easing was imminent. The US dollar has fallen sharply with bond yields.
AMERICAN DOLLAR RESILES MORE AND MORE FEDERAL
The scale of the move was modest, however. The greenback has moved back slightly towards the middle of the range it has been tracing since the end of May against a basket of its major competitors (euro, yen, Australian dollar and pound sterling), but nothing more. In fact, the general upward trend since the lows of late February remains visibly intact. This is quite impressive since the markets are now in favor of three interest rate cuts of 25 basis points before the end of the year.
An obvious question follows: how much extra space should it drop in the United States? Indeed, it is possible for markets to incorporate about as many stimulants as expected and probably more. Three cuts accompanying the easing of the QT balance reduction effort – all before the timetable is set for 2020 – represent a lot of hurried accommodations. It may not be possible to set much higher prices.
At the same time, there seems to be a clear gap between market reaction to the likelihood of monetary policy support and the reasons for this support. Investors seem too happy to celebrate the first without thinking too much. If they were to consider that the Fed’s defensive stance reflected a worrisome slowdown in global growth, their pink stance may soon be deteriorating.
AVERAGE RISK MAY INCREASE DEMAND FOR US DOLLARS
The coming week brings many opportunities to rethink. Retail sales in the United States and Chinese GDP data should show a slowdown, highlighting the adverse effects of the trade war between the two largest economies in the world. President Powell is also due to speak again – this time at the Bank of France – and should probably sound the alarm again. The beige book survey on growth conditions in the American region can also be worrying.
On the geopolitical front, the group of G7 finance ministers will meet to discuss the worsening global outlook and the UK will probably say that Boris Johnson, his Brexit enthusiast at all costs, will be his next prime minister. As if that were not enough, a steady stream of second-quarter corporate earnings reports will give the world’s largest companies the opportunity to worry about the growing global malaise.
In thinking about such things, the markets have had to take into account an increasingly important rescue operation from the Fed, which has fed the feeling of the last weeks. Once they have exhausted their leeway to continue, an impulse to reduce portfolio risk could begin to take center stage as a dominant factor in price action across the market. This process is likely to give a disproportionate premium to liquidity and, in this regard, the US dollar is unmatched.