New Trends in US Dollar

New Trends in US Dollar

When we are looking to capture strong returns in the forex markets, it is important to figure out where the dominant trends are headed for the world’s reserve currencies.  When we are thinking about these trends, the US Dollar is generally the standout currency and so it is a good idea for investors to strengthen their understanding about where the dominant trends are currently seen.  

Here, we will look at some of these dominant trends and try to determine where we are likely headed in pairs like the EUR/USD into next year.

Central Bank Stance

The first factor to watch is the central bank stance that is currently being defined by the US Federal Reserve.  Market research reports from CornerTrader show that currency values tend to rise when interest rate levels are increased, so this is clearly a factor that will need to be watched going forward.  If we see increased interest rates by the US Federal Reserve, we will then have a very strong framework that would help to support values in the US Dollar.  

This is trend momentum that can be viewed as strong enough to significantly change the outcome as we head into next year.  So if you are looking for new ways of trading in the US Dollar, one possibility to consider is the strategy to sell on rallies.  Currency pairs like the EUR/USD have some very clearly defined resistance levels in the 1.10 area so it is more than likely that we will see an increase of sell orders once these price levels are reached.  

Of course, there are factors that would limit the ability of the Federal Reserve to actually start raising interest rates.  It is not difficult to think back just a few months to remember that the Federal Reserve was actually supposed to start raising interest rates earlier this year — but this did not actually come to fruition.  If this occurs again in 2016, all of these projections would be reversed and we would probably start to expect larger declines in the greenback.  

 

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About the Author
Richard Cox is a university teacher in international trade and finance. Lessons in macroeconomics and price behavior in equity markets. Trade ideas are generally suggestive of time horizons of one to six months.

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