Dollar Forecast for Week Before Fed Meeting

The US dollar ended the last week on a positive note. Can the US currency maintain its bullish momentum or a pause in the rally should be expected?

There are arguments for both possibilities. On one hand, the previous week’s gains resulted in a clear-cut uptrend. On the other, the rally might be considered a bit excessive after the Dollar Index reached the 11-year high. If the latter sentiment takes hold of the market then some form of correction should be expected.

The main driver for the US currency should be the next meeting of the Federal Reserve. Market participants will closely watch wording of the statement, particularly if it drops the mention of â€˜patience.’ The problem is that the meeting will occur next week, not the current one, meaning that the market will be driven by mostly speculations. While it is hard to predict what sentiment traders will show, fundamental data should have some impact on it.

The arguably most important fundamental report – non-farm payrolls – has already been released last week, and it was a bullish one. This week, the JOLTS report should be a release to watch. It is an important indicator, although a lagging one, which the Fed pays close attention to. Among other important indicators this week will be retail sales, unemployment claims, the Producer Price Index, and the preliminary Michigan sentiment index.

Analysts were rather bullish on the dollar ahead of this week. The Action Forex said that “buy-the-dip strategies are likely to remain in favour of USD crosses.” Forex Crunch predicted that the dollar will rise against the majority of most-traded currencies (though not all of them.) While the DailyFX was cautious, issuing a neutral forecast and saying that traders “may initially see some losses,” but concluded:

However, the deeper the financial retrenching becomes, the more frenzied the demand for the world’s largest reserve currency will become.

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