Over the last year, the U.S. dollar has been one of the outperformers in the currency markets. Speculation among those in the forex markets has revolved around whether the dollar would be able to strengthen to parity relative to the euro. And while this does not appear to be the case in the immediate future, this is likely the path of least resistance when we look at the long-term trajectory of both currencies.
There are still factors that could change these likely scenarios as markets are still looking to whether we will see any major changes in the policy direction of the Federal Reserve. Economic data have not been particularly impressive, but we are seeing some major changes in the ways President Donald Trump is already influencing markets.
There are still many administration outlook pieces that have not yet been realized so there is still scope for some major changes in the way markets are viewing the U.S. currency. This will undoubtedly influence the market trends that are seen in the forex online environment over the next six months.
For these reasons, forex traders should continue to monitor these events in order to identify new trading opportunities as they arise because these types of situations should start to occur more frequently relatively soon and in more than one forex trading pair.
Chart: PowerShares DB US Dollar Index Bullish
In the chart above, we can see that the PowerShares DB US Dollar Index Bullish (UUP, Financial) made its recent lows during the February period and we have since seen some modest rallies in assets tied to the value of the greenback. But now that we are approaching the levels that market the previous highs from earlier this year, we will likely see an increase in selling pressure from the contrarian side of the market.
For these reasons, traders will need to be watching the 26.80 level as we start trading in the beginning of March. A clean break here would be important in that it would suggest a resumption of the uptrend and validate the upward trendline that has been in place since September 2016.
Technical Levels
Conversely, a downside break could be equally important because it would invalidate all of these technical indicators and create a double top in the 26.80 region. Ultimately, this would make it extremely difficult to reignite a positive trend in the U.S. Dollar in the first half of this year.
So for many forex traders, this is the area that will likely mark the line in the sand as price behavior in the near term should be highly educational in terms of the ways it allows traders to position for what could happen in critical pairs like the euro/dollar and the dollar/yenin the latter parts of this year.
Disclosure: The author has no position in any asset mentioned.
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