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US Dollar Research Report

Published: Friday 15 September 2017

  • ​​US Dollar under pressure from all sides…
  • Guidance for USD buyers and sellers
​By Rachael Kinsella

The US Dollar has struggled under the sudden strength of Sterling and has continually been put under pressure by a buoyant Euro.

It’s been somewhat of a rollercoaster ride for currency markets this month, and much of the activity has centred around the US Dollar and its relationships with its key currency pairings.
Positive economic data from the US and a robust USD at the end of August, as the US Dollar showed impressive intra-day growth, have given way to a very different picture, beginning at the start of September and continuing over the past few weeks.

First, the US Dollar fell as North Korea released their hydrogen bomb and markets turned to “safe haven” stalwarts, such as the Swiss Franc and Gold. There was also, ironically, a rise in the strength of the Japanese Yen following the event. The latest missile test over Japan failed to move markets as dramatically as the previous test and the bomb, which caused a sizeable earthquake and sent markets into survival mode.

The USD then lost momentum as the US Non-Farm Payrolls data – a key indicator of economic strength for the US – failed to impress, coming in significantly short of expectations at 156,000 rather than the 180,000 forecast. Wage growth was also lacklustre, increasing only 0.1% instead of the 0.2% expected. The unemployment rate, widely expected to stay the same, actually grew, up to 4.4% from 4.3%.President Trump’s first major speech on tax reforms lacked detail but failed to move the US Dollar.

Hurricane Irma and her storm companions also squeezed the US Dollar, but it recovered a little when the damage to Florida was not as extensive as at first anticipated.

Markets are still keeping a close eye on the Federal Reserve to see if there will be any increase in interest rates again in 2017, or if there will be any changes to the US monetary policy. The general consensus is that they are unlikely to go up again by the end of the year, as disappointing data begs the question of whether inflation has picked up sufficiently but never say never…
Most recently, Sterling strength has hurt the US Dollar and encouraged further weakness for the USD against the Euro, made worse by disappointing key economic data released for the US. August’s Retail Sales figures were lower than anticipated and showed a fall of 0.2% compared to the previous month.  Even the auto sales figures, although up for the past month, did not live up to expectations, coming in at 0.2% instead of the forecast 0.5%. The September US NY Empire State Manufacturing showed 24.4 instead of the 19.0 anticipated, but below the previous figure of 25.2. Other key data is still to be released, such as the latest Michigan Consumer Sentiment Index.

Market experts differ in opinion as to whether USD weakness is only temporary, or could fall further.

Guidance for USD buyers

Dollar buyers are at last seeing some respite, now that we have broken above 1.3500. As long as that holds, 1.3850 would be the next level to target. A break below 1.3350 would suggest that the break was false and we would revert back to the previous trading ranges within 1.3000 the next support.

Guidance for USD sellers

US Dollar sellers may have to get used to a new trading range. The exchange rates are still at the low end, historically, however, 1.3500 is now decent support.
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