Bull vs. Bear: What to expect from the dollar in Q4

As mentioned in a previous article on post-election trading, the dollar is forecasted to dip, possibly rather severely, over the coming days and even weeks. Exness traders who agree with that prediction will be expecting some extreme volatility that will likely produce highly-risky highly-profitable returns before losing steam. But what comes after the dust has settled on Capitol Hill?

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There is no doubt that the US dollar has shown remarkable strength this year. With the US federal funds rate coming out on November 8, we will hopefully get some more clues on where the “greenback” might be headed from here.

In the meantime, however, we have invited two forex market experts to share their view on how the dollar will react to another tightening of interest rates, and how Exness traders should position themselves to take advantage of the big opportunities that appear in the market.

The dollar will surge!

Many believe that the US dollar will bounce back into a slow-burning rally higher until the end of the year–at least!

Given that the federal funds rate is likely to come out unchanged at 2.25%–which is largely priced in by the market already–a huge reaction should not be expected right away. What we could see, however, is some volatile price action when the FOMC statement is released, especially if something unexpected comes out of it.

More interestingly, perhaps, is the technical picture for the so-called US Dollar Currency Index (DXY) right now. As you can see, the dollar tried to break through the resistance area that was formed by the previous peak in the market, indicated by the yellow line in the top right of the chart below.

When the break-out failed, however, the dollar fell back slightly, but far from enough to scare away the bulls. As can be seen from the chart, it has fallen just enough so that the price remains above the previous “swing high” from early October. In other words, the clear uptrend in the dollar is still intact for the moment!

Factoring in all the capital outflows that we’re seeing from emerging markets like China, Turkey, Argentina, South Africa, and other places, there is little doubt that the mighty US dollar will move higher before the year is over. This is especially true against the recently weakening emerging market currencies like the Turkish Lira (TRY).

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No, the USD is way overvalued!

The truth is that the technical picture of the US dollar is not that strong when we compare it with other developed markets. Take for example the US dollar against the Canadian dollar. On this chart, we can see that the USD peaked in late June this year and that it has since been trading in a downward trajectory.

From a technical perspective, the USD/CAD pair does not look like a market this is going to break higher anytime soon. And with only two months left of 2018, it’s doubtful that it will end the year higher, to say the least.

Fundamentally speaking, it’s also important to remember that there will come a time when the huge US deficits will be back in the headlines again. Players in the currency market will then realize that the greenback is far from being the safe-haven they thought it would be. These players will then run to the real safe-havens – precious metals and more solid currencies like the Swiss franc.

Another factor at play here is gold, which finally seems to be gaining some traction again. As we all know, the dollar and gold are negatively correlated. In fact, we could say that higher gold prices by definition means that the dollar is weakening.

Judging from the gold chart, we can see that the shiny metal has established itself higher after breaking out of the downward trading range from this summer. The gold price has now formed three consecutive higher lows on the chart – the very definition of an uptrend. The real opportunity may therefore be in going long gold and short the US dollar this quarter.

So, there you have it – two experts, but with significantly differing views on the outlook of the US dollar in Q4 2018. If there is one thing we can take away from this, it’s probably that it’s important to do your own research, and that predicting prices far in advance is a tricky thing to do in the forex market.

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This article is a marketing communication and does not constitute investment advice or research. Its content represents the general views of our experts and does not consider individual readers’ personal circumstances, investment experience, or current financial situation. This article is not prepared in accordance with legal requirements promoting independent investment research, and Exness is not subject to any prohibition on dealing before the release of the article. Readers should consider the possibility that they may incur losses. Therefore, Exness is not liable for any losses incurred due to the use of its articles.