If you are a currency trader and you are trading USD pairs like EURUSD, GBPUSD, AUDUSD, NZDUSD, USDJPY, USDCAD etc you should keep an eye on what USD is doing. After the US Presidential Elections, USD rallied hard. This rally was augmented by Federal Reserve decision last month to increase interest rates. This has driven the EURUSD, GBPUSD, AUDUSD and NZDUSD down pretty hard while USDJPY and USDCAD have risen. When you are trading USD pairs, you should understand the fundamentals that are driving USD. Right now fears are that USD rally is wearing off. Is it the time to buy US Dollar Index?
The important question is has the USD peaked? Federal Reserve increased the interest rates in the FOMC Meeting last month. This drove USD higher during the past few weeks. But now US economy is reaching the full employment level this means the economy is overheating. Federal Reserve is planning more interest rate increases this year. Second interest rate increase can happen this month during the FOMC Meeting. If this happens this will help drive USD higher even more. So the fundamentals are driving USD higher.
In the first week of this new year, USD seems to be struggling. Ten Year Treasury Bond yields decreased 5% a few days back. This forced USD to weaken against other currencies. So we will have to see if USD sinks to one months low or not. Right now there are no major economic news releases scheduled and USD is taking the cue from the US Treasury Bonds yields. Did you read the post on how to incorporate Economic News Releases in your trading system?
However there are reports in the financial media that the new US President Donald Trump may spark a trade war with China as soon as he assumes office. If a trade war starts with China, major financial news sites like Bloomberg and CNBC are of the view that China will be the winner. If news of a trade war grows strong in the financial media this may stop USD rally and it may start falling. So we have to keep our fingers crossed. Watch this video that explains the rise of USD in the past month!
The important question is how long this rise of US Dollar will continue? As said above if new US President starts a trade war with China as soon as he assumes office, this might halt the rise of US Dollar and it can start falling.