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Currency Shorts

Posted by Joseph Trevisani on Nov 18, 2016 4:56:16 PM

The Dollar and Majors


  • With the Fed the only CB contemplating higher rates the general trend to a stronger dollar has resumed  though not yet strongly
  • From March 2015 until  this past week the dollar was in a wide but essentially stable range in the DXY, and the euro
  • Against the yen it was volatile from 102 in Aug 2014 to 125.63 in mid- 2015 and then back to 102 in September
  • Recent yen strength was probably due to the failure of BOJ reflation and the safety and repatriation effects of the falling yuan
  • The sterling has varied and will vary with the vagaries of Brexit
  • The Fed in 2017 is the immediate key for the dollar, a December hike is a done deal (barring catastrophe)
  • The economic outlook in the FOMC and the 2017 rate projections at the December meeting will be most important and drive the dollar
  • The Trump economic and fiscal plans should produce stronger economic growth, so absent negative  overseas developments the Fed and the economy should be in a position after the inauguration to posit two and hint at more increases next year
  • The potential Fed rate program, will, more than anything else keep the dollar strong


Resource and Emerging Markets


  • Commodity prices are suffering from weak global growth  the strong dollar effect on prices and concerns about trade policies
  • Commodity currencies have the above worries and a widening rate gap vis a vis the Federal Reserve
  • Stronger US growth will help stabilize commodity prices but alone, unless substantially more robust than the average of the last 7 years will not drive a recovering trend in commodity prices
  • Absent a credible worldwide recovery (or at least the U.S. and China) commodity prices are unlikely to recovery  to 2012-13 levels
  • Until commodity prices return to an upward trend taking  their economies with them, emerging and resource currencies will remain on the defensive against the dollar
  • China and the yuan are a wild card. The yuan is well below the levels of last August and this January that caused so much carnage and concern in equities
  • With the U.S. elections the attention of markets has been elsewhere, but the level of the yuan speaks of serious trouble in the mainland economy. If and when that becomes notable and noticed it could reignite the safe-haven trade to the dollar, Treasuries and the yen.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg


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yen nov 18.png





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