Forex markets continue to be dominated by USD strength which has seen the Dollar index retest its 13 year highs of 100 yet again after dropping off late last year to print lows of 91.7. This strength in the dollar index, which shows the strength of the USD against a basket of currencies, comes in light of Donald Trump winning the Presidential election and markets subsequently favoring his pro-business and pro America stance, as we see investors sell off safe haven and emerging market assets in favor of stocking up on the USD.
A continued view of a stronger America in the hands of Trump combined with positive economic growth, will see the USD continue to gain in strength, however, markets are showing signs of exhaustion and we might see the green back give back some ground as bulls prepare to break through the 100 barrier. The correction will be dependent on the upcoming economic release and any news regarding the December Fed rate decision in which markets will get a clearer picture of how the US economy is doing based on how the Fed comments on the recent economic and political events in the country.
Should the Fed increase rates as some market participants are pricing in, we would see a surge in the USD while gold and equities lose value via vis the USD. Should the Fed keep rates on hold, we would see sentiment sour a little as markets begin moving funds out of the dollar into more favorable assets.
Today’s economic release out of the US will serve as a guide to the potential decision the Fed might make and markets will be watching closely to see if the Retail Sales, Empire State Manufacturing Index and Import prices figures can beat their respective expected figures or not. Should the figures come out better than expected, we would see the USD strengthen across the board as the USD index surpasses its 13 year highs. However, worse than expected data may be the catalyst for the USD to hold off passing the 13 year high for a little longer.