US Dollar Traders On High Alert Amid GDP, FOMC, Market Volatility

Technically, the Greenback (US Dollar specifically) has advanced for four consecutive weeks through Friday’s close. That’s an impressive run especially considering it is marking serial, 12-year high closes. That said, the run is virtually devoid of conviction – which is momentum from a price perspective. The lift the currency has found to its present lofty level was founded mainly through monetary policy, and the premium it afforded has been largely absorbed. Yet, that doesn’t necessarily mark the end of the bulls’ control. A divergent rate bearing will be revived with a range of rate decisions led by the Fed’s meeting. What’s more, the stronger the push of all those catalysts tracing back to risk trends; the closer the market comes to unleashing the Dollar’s haven appeal.

Fundamental Forecast for Dollar:Bullish

As has been the case throughout January, this past week’s primary focus was the ebb and flow of global risk appetite and a rebound for equities, Yen crosses and other sentiment-benchmarked assets through the second half of the week allowed investors catch their breath. There seems limited catharsis in this correction though as the level of volatility in the markets keeps both short-term tactical traders and long-term buy-and-hold investors on the sidelines.

The Dollar is a well-known haven – one of its defining traits. Yet, it hasn’t exploited that status in 2016’s broad market slide. The safety standing remains, but its sensitivity has been warped by the same driver that afforded its gains over the previous years. The anticipation – and later realization – of Fed hikes led speculators to crowd in ahead of higher, competitive yields moving forward. That also, however, made the USD a carry currency. It wasn’t for the actual carry itself, but frontrunning the flood of capital that comes with interest rate changes. That is an important caveat as we are unlikely to the same degree of carry unwind as say with the AUD, NZD or high-yield emerging market currencies. Yet, that is also a buffer to its safety appeal.