Fundamental Outlook for US Dollar: Bullish

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The US Dollar finished the week higher against all major currencies except the Japanese Yen, but the downtrodden currency failed to break key range highs against the Euro and other important counterparts. Forex markets remained highly indecisive and traders were seemingly unwilling to bust the Euro/US Dollar exchange rate from its multi-week range. Our DailyFX 1-Week Volatility Index continues to trade near its lowest levels of the year, and it seems FX Options traders are pricing in similar range trading for the holiday-shortened trading week ahead. A number of historically market-moving economic releases may nonetheless force sharp intraday price moves through mid-week trade—especially given the state of relative unease across key asset classes.


The North American Thanksgiving holiday means that markets will likely become illiquid through later-week trade, but earlier-week price action could produce big US Dollar moves on several important reports. The first on the ledger is the admittedly unpredictable Existing Home Sales report, which often goes unnoticed but occasionally produces great equity market volatility. The following day brings the second release for Q3 Gross Domestic Product figures, Conference Board Consumer Confidence survey results, and the minutes from the Federal Open Market Committee’s most recent policy-setting meeting. All three events have been known to force considerable moves in the S&P 500 and US Dollar, and it remains important to watch for surprises from each.

Fed Chairman Ben Bernanke recently shook US Dollar markets when he said that the Fed was paying close attention to exchange rate moves. Markets will pay very close attention to any and all references to the US Dollar through the Fed’s discussions—especially as the Greenback trades near significant lows versus the Euro and other key counterparts. We admittedly put low odds on any explicit mention of the US Dollar in the Fed minutes, but such low expectations could make for extensive volatility if we do see the Fed talking the dollar higher. Suffice it to say, traders should be on the lookout for post-Fed financial market price moves. Personal Income and Spending, Durable Goods Orders, and New Home Sales reports round out the week of significant US Dollar event risk. Any one of these releases could likewise spark big moves—especially in the relatively illiquid trading session before the US holiday.

The US Dollar remains in an uneasy range against major counterparts, and exceedingly low volatility expectations suggest that it may remain restricted through the week ahead. Many weeks ago we argued that extremely one-sided FX Futures and Options positioning meant that a substantive US Dollar correction was inevitable. We have indeed seen the Greenback bounce off of range lows, but positioning has subsequently corrected and does not necessarily point to further Dollar gains. This leaves us in a very uncertain position, and we may need to wait for a large shock across financial markets to force substantive shifts in trends. FX Options put low odds on any such occurrence in the week ahead, however, and low volatility expectations leave markets primed for further range trading.

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