DailyFX.com -
Fundamental Forecast for Dollar:Neutral
-
EURUSD and USDJPY present the most pertinent motivators for Dollar movement and both have weighed the Greenback
-
A long list of data releases is topped by the April NFPs while the round of Fed speakers will attempt to thaw rate hike doubts
-
See our 2Q forecasts for the US Dollar and market benchmarks on the DailyFX Trading Guides page
The Dollar dove to end this past week at its lowest level in 11 months. The extension of the currency’s slide from its 13-year high set back in late January (now down over 4.5 percent) was fueled by a distinct loss of traction in rate forecasts. Much of the Greenback’s advance these past years has been founded in one way or another from this projected yield advantage. As that fundamental lead eases, the currency loses lift. The question is how much of its lead will be lost to unfavorable winds? That is just as much a statement on the Dollar’s counterparts as it is reflection of the Federal Reserve’s course. There will certainly be plenty of mileposts throughout the coming week to shape speculation. And, if the tentative slip in risk trends gains purchase; we may find the dormant haven status finally return.
Looking back to this past week, I was expecting the Dollar to stabilize and even regain some lost ground on the basis that moderation from the central bank’s tone and/or softening of US growth would be discounted; and the currency would benefit from the fundamental disadvantage of its counterparts. However, the substantial strengthening of the currency’s primary crosses – the Japanese Yen and Euro –significantly overpowered the passive appeal in the Dollar. In the week ahead, the collective course of these crucial peers may exact as much influence on the Greenback’s course as its own fundamental docket.
To assess how much cross-currency pressure afflicts the Dollar, there are two factors to consider: the influence (liquidity) of the counterpart and its momentum. The Euro easily dominates the field of counterparts. Where, according to the BIS triennial report, the US Dollar is on one side of 87 percent of the world’s currency exchanges (so total of 200 percent); the Euro was second at 33 percent. When the Dollar is adrift, an engaged Euro can render the most indirect influence. With EUR/USD just below 1.1500 – the general zone of resistance back to the start of 2015 – the pressure is material. The Eurozone 1Q GDP report this past week set out a noteworthy beat and put the aggregate economy back above the level that it stood before the recent crisis. Yet, the performance is uneven and a solid foundation for appreciation is proving difficult to register.