Protectionism, Trade War Or Dollar Trend?
Jahan Ara | Feb 01, 2017 05:18AM ET
US dollar index extended the range on the upside by testing 101.00, but failed to continue marching higher and fall back to extend the lower range to an important support of 99.40. Global currency markets are facing multiple factors causing uncertainties since President Trump took office.
Initially, President Trump showed his concerns on the strong dollar policy. The same stance was taken later on by the US Treasury Secretary nominee and today Donald Trump and a top economic advisor targeted Germany, Japan and China by claiming that these US trade partners are devaluing their currencies, causing damage to US companies and consumers. Such comments are creating big questions about US' stance on the G20 agreement according to which they will not pursue policies to target exchange rates for competitive purposes. This leads to a big uncertainty and begs the question if we are heading towards a currency war.
On the other hand, Trump’s Protectionism also emerges as a threat to US economic growth. President Trump’s stance on protectionism can impact the expected results of the growth forecasts as well as with the protectionist trade policies, it can be difficult to measure the impact of any rate increase which may lead to the FOMC facing difficulties in keeping the monetary policy in line with its forecasts.
Short term technical picture of the dollar indicates a possibility of further weakness. The strong support at 99.40 seems to be a critical level, which can lead to a bounce and keep the dollar in a range trade between 99.40 to 101.20 (recently extended from 99.80 -100.40). On the other hand, long term charts indicate a strong possibility of further weakness ahead with initial target at 96.50. Any bounce towards 102 can offer an attractive selling opportunity, while any break below 99.40 can also be selling opportunity but in this case the risk reward ratio is comparatively not that attractive.
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