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The USD is Getting Close to a Cyclical Peak

Published on: 09/17/18 10:10 AM

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Category: Currency, Forex, Latest News, Market, Trade, Trading, US News, World News

Future of USD


Forex traders who play the very long game have been watching the seemingly unstoppable United States dollar since last year, but this slightly bullish and highly stable run could be coming to an end in 2019. Major currencies are expected to be cyclical because they reflect the state of national and regional economies; in the case of the greenback, the strong American economy has caused it to be on a roll since 2015, but there are certain fiscal factors to watch for in this regard.

A recent Bloomberg report on the future of the USD quoted forex analysts from Deutsche Bank; they believe that interest rate hikes by the Federal Reserve will eventually result in a weaker dollar along with a stronger euro and yen. The problem that the U.S. economy will face is centered on its deficit, which has grown considerably during the Trump adminisration. There is more economic optimism than actual growth; the bullish sentiment on Wall Street cannot be expected to extend beyond 2018, and bond investors will likely start losing enthusiasm next year.

Long-term traders bursting with confidence


With the above in mind, it should be noted that the short-term and technical outlook of the greenback is still looking pretty good, especially against the euro and pound sterling. The European Union is not prepared to raise interest rates this year, and the United Kingdom is not getting any closer to striking a reasonable Brexit deal with the EU. Brexit is a drag on both the EUR and GBP, and it is a positive for the USD since it makes it seem competitive. Technical traders have truly warmed up to the USD this year thanks to the American economy and because the U.S. has not descended into political chaos as many had feared.

Long-term USD traders are feeling confident that this currency will continue to hold its ground this year. Political stability is the most significant fundamental factor at play for the USD; things could get ugly on Capitol Hill after the midterm elections if Democrats take control and go after President Trump, and there is always a chance of a bombshell report just around the corner, but this still gives the USD a 10-week window of stability.

Cyclical peak


The argument in favor of the USD reaching a cyclical peak this year is bolstered by the fiscal situation. The U.S. debt has always been high, but it is currently increasing at a time when tax reform has lowered revenue for the Treasury. Once the Federal Reserve decides to go the opposite way with regard to interest rates, long-term traders will know that the peak has been reached, and that the USD will likely lose value against the euro because the EU will then be in a position to raise interest rates.