The Dollar Outlook, Still Bullish

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POLL-U.S. dollar still favoured on gloomy global economic outlook

Credit: REUTERS/DADO RUVIC

The U.S. dollar will hold sway in the near term, driven by demand for safe assets on a worsening global economic outlook, with other major currencies are at best expected to regain lost ground over the coming year, a Reuters poll found.

B y Hari Kishan and Rahul Karunakar

BENGALURU, April 3 (Reuters) – The U.S. dollar will hold sway in the near term, driven by demand for safe assets on a worsening global economic outlook, with other major currencies are at best expected to regain lost ground over the coming year, a Reuters poll found.

The rout in financial markets and near-certain global recession caused by the coronavirus pandemic has caused a scramble to secure dollar funds. That blew up the cost to borrow dollars in funding markets, with three-month FX swap spreads rising to 2008 financial-crisis levels last month.

But those spreads have snapped back after the Federal Reserve’s effort to improve dollar liquidity by making it easier for other central banks to swap their currencies for dollars, pushing speculators to cut their bets in favour of the dollar in the latest week.

“As markets fret anew about the scale of global dollar liabilities, I am impressed by the Fed’s resolve. The exorbitant privilege that the dollar affords the U.S. has a sting in its tail and the Fed is on the scorpion’s case,” said Kit Juckes, macro strategist at Societe Generale.

“I fancy the Fed to win this one in the end. ‘In the end’, though, doesn’t mean today, and there’s an army of dollar bulls out there taking the other side at the moment.”

The demand for safe-haven assets has pushed the dollar .DXY to rise about 3.5% so far this year and register its best first-quarter performance since 2020.

While the Fed’s monetary policy easing should keep the dollar from surging, the dire economic outlook – confirmed by Reuters polls of economists, fixed-income strategists and long-term investors – was expected to keep the dollar’s gains this year intact in the near term. ECILT/WRAP US/INT ASSET/WRAP

“The global economy is heading into a recession due to the coronavirus and the USD should continue to outperform the most exposed currencies to global trade,” said Roberto Cobo Garcia, FX strategist at BBVA.

In response to an additional question , about 45% of analysts, 27 of 63, said the dollar would stay around current levels or trade within a range over the next three months. Twenty analysts forecast the dollar would fall; the remaining 16 said they expect it to rise.

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“The dollar will do well all year against all the currencies that are dependent on growth. Long dollar trades are best against those overly-dependent on oil exports and the most growth-sensitive currencies – a long list, mostly emerging markets,” said Societe Generale’s Juckes.

“Economists’ forecasts are increasingly being revised in appreciation of how bad the short-term hit is going to be. After that, we’ll get the realisation that while you can turn the lights off quickly in a crisis, getting them back on again is a slower business.”

But in a year from now, analysts predict, the dollar will weaken against most major currencies. That is a consensus view they have held as a group for nearly three years now, and so far, an incorrect one.

The euro, which has lost over 2% so far this year, was forecast to take back those losses to trade at $1.13 by this time in 2021.

But in the near term, the common currency, along with sterling and the Canadian dollar, were predicted to be the worst performers against the dollar in April, driven by its safe-haven status.

“We view the U.S. dollar a safe haven based on the fact that it is the world’s reserve currency and also there is an opportunity to hold Treasury debt as a high quality liquid asset – which has been outperforming and should continue to do so,” said James Orlando, senior economist at TD.

The stampede into dollars has hurt most emerging-market currencies, including the Brazilian real, the South African rand and the Russian rouble, which have lost about a quarter of their value and dropped to record lows. EMRG/POLL

Asked which emerging-market currencies will be the hardest hit in April against the dollar, a majority of analysts who responded chose those three currencies.

The Indian rupee, which fell to a record low on Wednesday, was expected to remain weak, with a significant minority of respondents predicting it would depreciate beyond that recent record low at some point over the next year. INR/POLL

Reuters Poll: U.S. dollar outlook IMAGEhttps://reut.rs/3aH8aXe

(Polling by Khushboo Mittal, Sujith Pai and Indradip Ghosh; editing by Ross Finley, Larry King)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

EURUSD still consolidating in short term; maintains bullish outlook

EURUSD has been consolidating since reaching a 2½-year high of 1.1909 on August 2. The 50-period moving average (MA) has flatlined on the 4-hour chart, pointing to a neutral bias in the short term and indicating that the strong rally that began in April has run out of steam.

However, the risk is to the upside as both the RSI and the MACD are in bullish territory. The RSI is trending down but remains comfortably above 50, while the MACD histogram is just above the red signal line.

To regain upside momentum, prices would need to break above the 23.6% Fibonacci retracement level of the July-August upleg from 1.1479 to 1.1909. The 23.6% Fibonacci level is also the 1.18 handle. A sustained rise above this level would open the towards the August peak of 1.1909, but before then, the pair might meet a hurdle at around the 1.1845 area, which previously acted as resistance. A break above 1.1909 would signal a resumption of the uptrend and reinforce the bullish outlook in the medium-term. The next key resistance after this point is the psychological 1.20 level.

To the downside, the 50-period MA at 1.1632 should be watched as a drop below this line would weaken the positive short-term bias, if not, push it to negative. Further down, support should come from the 38.2% and 50% Fibonacci levels at 1.1745 and 1.1695 respectively. Failure to hold above the 50% Fibonacci level could lead to a sharper correction and bring into view the 200-period MA (currently at 1.1665).

A drop below the 200-period MA could accelerate the decline towards the 50-day moving average on the daily chart, which is currently around 1.1560, threatening the medium-term bullish structure.

Gold Receives Bullish Outlook From Anti-Dollar Trade

This week, Your News to Know rounds up the latest news involving gold and the overall economy. Stories include: Anti-dollar trade is reinforcing gold’s bullish outlook, how silver could follow gold’s lead, and gold has plenty of room to move higher.

Anti-Dollar Trade Reinforcing Gold’s Bullish Outlook

Over the past two weeks gold was posting its best run in over six years. While the metal’s outperformance is generally tied to a weakening dollar, Mark McCormick, a foreign exchange strategist at TD Securities, believes other currencies are also playing a major role in gold’s rise.

According to an article on CNBC, previously-safe currencies like the euro or yen have looked increasingly shaky as of late, and reports from the G20 meeting thus far point to further depreciation of the fiat. This could leave investors with gold as the only haven option to run to if the U.S. dollar turns bearish, suggests CNBC.

Marc Chandler, the chief market strategist at Bannockburn Global Forex, stated that he feels pessimistic over the dollar’s outlook, especially given the Federal Reserve’s actions in recent months. The Fed’s sudden turn from hawkish to dovish in recent months has many strategists calling for an end to the dollar’s bull run, and Chandler is among them. With a dearth of safe-haven options available to investors, Chandler thinks that gold could surge to $1,700 in the relative near-term.

Besides policy decisions, Standard Chartered Bank’s precious metals analyst Suki Cooper sees plenty of other forces driving gold forward. One of them has been the ongoing central bank demand, which surged to record heights in 2020. Besides fear of faltering currencies, Cooper noted that investors are also worrying about a trade-war fueled global recession and military conflict between the U.S. and Iran. Cooper sees gold reaching $1,440 this year, with potential for further upside if the Fed cuts rates in July.

How Silver Could Follow Gold’s Lead

Traders who were expecting a usual tepid summer and bet against gold in Q1 were undoubtedly surprised to see the metal hit nearly $1,425 during its traditionally weakest season. But as gold posts an incredible performance of its own, analyst Stefan Gleason notes that silver has yet to tread the same path.

Right now, silver is trading at its biggest discount relative to gold in three decades. And as precious metals bugs waste no time loading up on the conspicuously cheap asset, an article on Silverseek.com reveals others are wondering whether the silver market is showing signs of concern.

After all, silver has always been more volatile than gold, and gold’s quick upswing should have translated to even bigger gains for silver, especially considering the already-disproportionate price difference. Numerous reasons for silver’s lag-behind have been posited, ranging from immense support for gold by central banks to low official inflation.

Yet Gleason sees a far more simple answer to the question of why silver still hasn’t caught up to the other metals. As the analyst explains, precious metals have been given little attention by the mainstream media in recent years as other markets were on historic bull runs. This left gold in a good-enough spot because of institutional support, but left silver behind as smaller investors focused on assets that were making the headlines.

With precious metals emerging into the limelight, Gleason is certain that silver will spark as the public catches on to the affordable alternative to gold. The resulting heightened demand for silver bullion could coincide with the long-awaited correction of the skewed gold/silver ratio to produce some interesting results.

Gold Has Plenty of Room to Move Higher

Gold’s rapid move to $1,425 after a lengthy range-bound period may have shocked many investors and traders, but an article on Kitco reveals that one of the world’s top asset managers sees more room for the metal to go higher.

Russ Koesterich, a manager who oversees the $27 billion BlackRock Global Allocation Fund, told Bloomberg that gold will keep climbing if the Fed continues to ease its monetary policy. The CME FedWatch Tool shows that market participants are expecting a 40% chance of a 50 basis-point interest rate cut in July, a sharp contrast to the hawkish 25-point hikes from just a few months ago.

Koesterich noted that the outlook for gold grows even more favorable when one takes into account trade-related frictions. Some feel that the Fed is being forced to alleviate the fallout of the U.S.-China trade war, and a major dovish move would likely act as a signal that economic trouble is on the way.

In an interview with Kitco, Koesterich’s colleague Joyce Choi, who acts as BlackRock’s director of fixed income product strategy, also touched upon the ever-less-appealing 10-year Treasuries. Even before the Fed’s dovish turnaround, analysts were warning that the 10-year Treasury yield curve was coming dangerously close to being flat. A single 50-basis point rate cut could push Treasury yields below 2%, further strengthening the case for owning gold.

With global tensions spiking, thousands of Americans are moving their IRA or 401(k) into an IRA backed by physical gold. Now, thanks to a little-known IRS Tax Law, you can too. Learn how with a free info kit on gold from Birch Gold Group. It reveals how physical precious metals can protect your savings, and how to open a Gold IRA. Click here to get your free Info Kit on Gold.​​

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