By John Kicklighter, Sr. Currency Strategist Fundamental Forecast for the US Dollar: Neutral
- FOMC raises growth and inflation forecasts, comments slightly more hawkish, yet dollar falls
- Tentative breakouts sabotaged by extreme lack of volatility, general lack of participation
- US Dollar tumbles – is this a lasting trend or a reversal opportunity in unusual market conditions?
Without doubt, the most remarkable event in the FX market this past week was the Dow Jones FXCM Dollar’s critical, bearish break through the final 48 hours. Against the backdrop of a tightened Fed approach and deteriorating growth / financial market readings (typically the fodder for greenback bulls), the benchmark currency actually succumbed to a break of overwrought congestion and slid quickly to lows not seen since the beginning of March. What makes this even more remarkable is that the sizable selloff from this reserve currency contradicts the general restraint of the broader markets. Other currencies and asset classes hold stubbornly to well-worn ranges and activity readings are at or near their lowest levels since before the 2008 Financial Crisis hit its crescendo. So, is the dollar leading the way (usher in a risk appetite run and its own bear trend) or destined to be knocked back into line (post a recovery)? As we have seen many times in the past, the few markets or individual assets have the ability to diverge from the general course of broader capital flow and underlying fundamental trends. Yet, rarely do market-wide shifts occur all at once – in other words, there is often a leader. To gauge which situation we are dealing with here, we should refer to the fundamentals. This past week was particularly unusual given the …..
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