The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
There is a view from certain circles that the USD over the coming 12 months (which, along with the US ten-year treasury, has become the must-watch market for 2017) will only go higher.
The simplistic argument behind this view is that we are going to see higher inflation expectations pushing the Federal Reserve to hike three times this year. Obviously, this would be down to a successful roll out of tax cuts, infrastructure plans, and a tax repatriation holiday and of course, less regulation through a repeal or amendment of Dodd-Frank.
The other view for a higher USD is that we are going to see protectionist measures, which in turn will cause a wave of capital to be repatriated by US companies.
Morgan Stanley coined the phrase ‘a good USD and a bad USD’. The path the USD takes will determine the label. This is certainly an interesting view - if you believe the theory, it could shape a longer-term directional bias for the USD, which of course FX traders will need to trade in and out of. Certainly, the USD basket is technically back testing the neckline, so a rejection of this level from here would provide traders with a far better entry point if the USD genuinely can only go higher!