Greenback may stay in the uptrend for a while as key drivers are set to remain intact
The bullish momentum in the dollar remains intact at the start of the week with EURUSD testing the round 1.00 level followed by a technical rebound to 1.006. Given ongoing risks of an energy crisis in the EU (restart of the NordStream 1 pipeline after maintenance), as well as fresh round of escalation of the economic confrontation with the Russian Federation (seventh package of sanctions), the probability of falling below 1.00 remains high. The FX options market suggests that the next major support zone could be around 0.98.
The overbought in the dollar is swelling and along with this extremely long bias in positioning, the odds and size of a potential bearish correction are increasing as well. However, for a long squeeze in the dollar, we may need to see weakening or the appearance of counter-signals in the key drivers of the recent rally of the US currency – slowdown in global growth momentum and aggressive policy of the Fed. However, in the near future, such a development of the situation is not to be expected - the Fed, based on incoming data, is increasingly inclined to raise the rate by 75 bp for the second time in a row while macro reports outside the US are full of negative surprises. Take the dismal report from ZEW today, which showed that German economic sentiment plummeted from -28 to -53.8 (forecast -38.3 points):
In addition, a potential positive surprise in the US CPI report on Wednesday (e.g., annual inflation above 9%) could trigger speculation that there may not be a slowdown in the pace of Fed tightening at the September meeting.
Reporting season in the US started this week, and short sellers in USD hope that positive surprises in the reports will draw investors into equities which should add to dollar supply and trigger some sell-off. However, given the current state of the global economy, the chances of actually seeing strong earnings figures seem low. Despite overstretched rally, the dollar is more likely to remain in an uptrend than a correction in the short term. From a technical standpoint, the dollar index (DXY) may find meaningful resistance at 110 level:
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The bullish momentum in the dollar remains intact at the start of the week with EURUSD testing the round 1.00 level followed by a technical rebound to 1.006. Given ongoing risks of an energy crisis in the EU (restart of the NordStream 1 pipeline after maintenance), as well as fresh round of escalation of the economic confrontation with the Russian Federation (seventh package of sanctions), the probability of falling below 1.00 remains high. The FX options market suggests that the next major support zone could be around 0.98.
The overbought in the dollar is swelling and along with this extremely long bias in positioning, the odds and size of a potential bearish correction are increasing as well. However, for a long squeeze in the dollar, we may need to see weakening or the appearance of counter-signals in the key drivers of the recent rally of the US currency – slowdown in global growth momentum and aggressive policy of the Fed. However, in the near future, such a development of the situation is not to be expected - the Fed, based on incoming data, is increasingly inclined to raise the rate by 75 bp for the second time in a row while macro reports outside the US are full of negative surprises. Take the dismal report from ZEW today, which showed that German economic sentiment plummeted from -28 to -53.8 (forecast -38.3 points):
In addition, a potential positive surprise in the US CPI report on Wednesday (e.g., annual inflation above 9%) could trigger speculation that there may not be a slowdown in the pace of Fed tightening at the September meeting.
Reporting season in the US started this week, and short sellers in USD hope that positive surprises in the reports will draw investors into equities which should add to dollar supply and trigger some sell-off. However, given the current state of the global economy, the chances of actually seeing strong earnings figures seem low. Despite overstretched rally, the dollar is more likely to remain in an uptrend than a correction in the short term. From a technical standpoint, the dollar index (DXY) may find meaningful resistance at 110 level:
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.