Just How Far Can the USD Rally be Expected to Go?

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How far, how long and how high? These are the three questions which have been gripping Forex traders in regards to the continued rally of the United States dollar. Much to the surprise of many, the victory of Donald Trump seems to have provided a much-needed boost to the greenback. During trading late in the week, the dollar gained even more ground to reach a USD/EUR value of 1.0625 (1). Although this is great news for short-term investors, there is a larger question looming. How long can this movement be sustained and what other variables are likely to enter into the equation?

A Question of Resistance

Some Forex traders continue to watch technical indicators. However, it is just as important to take into account psychological resistance levels. Most feel that the next major breaking point will be at the 1.0700 mark. In terms of support, the base level of 1.0500 is a reasonable mark to follow.

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The main issue is whether or not the dollar will test the 1.0700 level before the end of 2016 and if so, how far it may pull back. This is still unclear, as news of a potential Federal Reserve rate hike is on the horizon. Eyes are therefore likely to remain focused on the non-farm payroll data to be released next week. However, most expect that this data will remain positive and that the Fed is likely to retain its position on longer-term rate hikes. This might push the dollar even higher.

International Forex Predictions

There is a very good reason why the EUR/USD relationship was mentioned earlier in this article. Forex traders will be watching this ratio carefully, as the disparity between these two currencies continues to grow. The Euro has taken hits in recent months due to the rising instability within the entire Eurozone and this stance is not likely to change much. However, analysts will also be closely watching the upcoming Italian referendum taking place on 4 December (2). These results could have a further impact upon the value of this 28-nation currency.

It could be a very wise decision to take advantage of this relationship in favour of the dollar, as the euro is likely to remain in the doldrums for some time to come. This is naturally assuming that no unexpected news emerges from the United States.

The Canadian Dollar

The CAD/USD is another relationship to watch carefully. While perhaps not traded as much as other benchmark currencies such as the British pound, the Canadian dollar is likewise poised to enjoy a favourable pairing with the United States currency. This has less to do with Forex indicators as it involves the recent OPEC announcement to potentially set a cap on oil production. This has helped the prices of this commodity to slightly recover and therefore, CAD values have likewise improved. Some Forex traders could be inclined to take up a short-term position and pair this currency against the dollar.

Looking Ahead

Although the short-term psychological resistance levels of the dollar can be relatively easy to determine, Forex traders are also looking towards the horizon and in particular, what can be expected during the first weeks of 2017. When Donald Trump is officially sworn in as president, it is likely that the dollar will rally further before pulling back. The question is obviously how much of a rally can be expected. Unfortunately, the accuracy of this prediction will have much to do with how he outlines his policies between now and 20 January. There is still no doubt that the dollar will have to pull back as profit-taking measures are bound to take place during the beginning of the fiscal year.

There is no doubt that 2016 has already been a landmark year in terms of Forex trading and 2017 is set to exhibit the very same quality. Intuitive traders should therefore take advantage of all of the tools and instruments offered at CMC Markets. This platform will enable investors to benefit from short-term movements as well as long-term predictions. Nonetheless, all eyes should continue to focus upon the value of the United States dollar.

 

Sources:

  1. https://www.fxstreet.com/news/eur-usd-reaches-fresh-daily-highs-but-lacks-follow-through-201611251609
  2. https://www.efxnews.com/story/34731/week-ahead-trading-second-coming-usd-credit-agricole

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