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USD Questions & Answers

By Ashraf Laidi  |  16/02/2018 17:24
”AshrafLaidi”/
What a week it’s been. In the FX markets’ flip-of-the-coin, it appears that heads: bad news for the US dollar, tails: worse news for the greenback. USD/JPY hit a 15-month low of 105.55 and EURUSD tested 3-year highs of 1.2555 before pulling back by a full cent as traders squared some of their positions ahead of US President day weekend and the Chinese New Year. Here are some key points for next week.

- All currencies gained versus the US dollar this week, but gold and silver came on top. Both metals achieved the exploit of rallying against all currencies, even versus the advancing yen.

- The rationale for gold is vital to understand. All eyes were on this week’s US inflation and retail sales for January. The best of both worlds emerged for metals -- CPI rose 0.5% m/m compared to expectations of 0.3%, while

- retail sales report. It was down 0.3% compared to the consensus expectations of +0.2%. We know rising inflation is positive for gold. And when retail sales disappoint, it further helps gold due to the negative implications for USD.

- Thus, as long as US economic data remains neutral to negative and inflation metrics in and out of the US hold up, metals and yields will advance.

- Notably, markets have witnessed several paradigms and patterns in the first half of February, none of which led to a strong US dollar.

- One pattern is worth watching for the next 2 weeks: Are falling equity markets the only medium for a USD recovery—or stabilisation? We saw some of this on Friday. Would a failure for the DOW30 and S&P500 to regain 25500 and 2745 lead to further USD support?

- Those seem to be questions for swing traders. In this week’s video, I discussed the USD macro view, highlighting the close relationship between deficits and USD. Next week’s release of the Fed minutes may keep the door open for as many four rate hikes this year.

And as long as the US economy is set to move from the enourmous Fed printing stimulus to a tax/debt stimulus, then we could see as low as 81 in the USD index this year and as high as $1520 in gold.


Any information, analysis, opinion, commentary or research-based material on this page is for information purposes only and is not, in any circumstances, intended to be an offer of, or solicitation for, a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any person acting on it does so entirely at their own risk and GKFX accepts no responsibility for any adverse trading decisions. You should seek independent advice if you do not understand the associated risks.

 

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