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Strong Dollar, Weak Dollar

Strong Dollar, Weak Dollar

By Michael McCarthy, Chief Market Strategist, CMC Markets Australia Higher or lower US interest rates. Sooner, or later? Leading to USD strength, or weakness. After a 25% rise in the dollar index from mid-2014, the only certainty is that USD conditions will affect every currency pair. The direction of the USD is a tough but necessary call for FX traders. Unfortunately, the variables remain opaque. Trends in US economic indicators are positive, but many have slowed recently. The Fed signalled tightening, then squibbed on their signalling. And global growth estimates are thrown in to flux by uncertainty around China. What’s a trader to do? One approach is to let the market decide. Consider a currency where the central bank is either neutral or accommodative. Identify a trading range in recent times, and look for break of that range to indicate the next USD move. Which brings us to USD/JPY: Accommodative central bank? Tick. Trading range? Tick. One less than optimal aspect is the false break yesterday, but there are enough data points to draw the support. My suspicion is that the pair could possibly break downwards below the false break low, at 118.03, with resistance near 119.03 and next potential support at the August low near 116.03.

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