FxWirePro: Dollar likely to decline by more than 5 percent

After an impressive rally post-US election in November, the US dollar has come under siege since late January. FXCM US dollar index has declined by more than 2 percent and it is currently trading at 12323. The US dollar index, which is traded in ICE and is the value of the dollar against a basket of six currencies has declined almost 2.5 percent since January and is currently trading at 100.5

The dollar faced siege from two fronts; one being the uncertainties surrounding US policies which include not only the uncertainties with regard to policies under the new administration but also the ability of the new administration to pass its agendas successfully through the House of Representatives and the Senate.

The second one is more global in nature and us at FxWirePro have been discussing that over the past year or so. While the US Federal reserve has turned out to be quite hawkish in 2017, it is well behind the curve when compared to its 2014 forecast that triggered the impressive 2014 summer dollar rally. Despite falling behind Fed’s own forecast, the dollar could find support from the dovish actions of other central banks namely the European Central Bank (ECB) and the bank of Japan (BoJ). Now, those central banks are considering a reversal in their monetary policies, which is not likely to bear well for the dollar.

The dollar has also found support in the election uncertainties in Europe and once that clear up, we suspect that the dollar could be in for a big decline.

We expect the dollar index to decline by more than 5 percent from the current level and test resistance around 95 area. The stop loss for this trade should be kept at December high around 103 area.