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USD Makes New Highs: Can the Strong Dollar Persist?

Posted 04/26/2019 9:05AM CT | John Caruso

First quarter real GDP growth came in this morning at 3.2%, surpassing expectations of 2.3%. Nevertheless, the dollar has ticked lower in morning trade from its new highs made earlier in the week. This makes sense from a technical perspective, as the USD entered overbought territory yesterday after a substantial run-up over the last 4 sessions. Friday morning, the dollar is trading 30 ticks off its weekly high, but will likely be supported in the short term by strong GDP growth and lack of competition from other developed economies. However, we’re still of the opinion that the days of the bull run in the USD are numbered. The Fed has pivoted from hawkish to dovish over the last few months, and there is reason to believe more dovishness will blossom throughout the year as there are still talks of rate cuts down the line.

A dovish Fed is bearish for the USD. Recently, the dollar has been winning by default, as foreign currencies trade against the dollar in the global market. With the dollar reaching new highs, and pulling back despite impressive economic data, there is reason to believe foreign currencies are in a bottoming process and it is apparent on their charts. For example, the yen has held in its consolidation pattern this week as the dollar surged higher, and it is now trading near its weekly highs, despite dovishness from the BOJ this week. The euro also stands to benefit from a downfall in the dollar – as the exit situation falls into the background – and it is currently trading in oversold territory. We are seeing an upward reversal in the euro Friday morning despite better than expected US GDP numbers; it appears a beat was already priced into currency markets. 

Japanese Yen Jun ’19 Daily Chart

Japanese Yen Jun '19 Daily Chart

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John Caruso

Senior Market Strategist
Follow John on Twitter @JCarusoRJO. John began his career at Wilshire Quinn Capital, a Wealth Management Firm based out of Los Angeles, California. Prior to becoming a broker he did some individual trading on his own, where he first began to study and interpret different market strategies and ideas. In 2006 John moved over to Lind-Waldock where he began to service clients as a professional broker. He joined RJO Futures in 2011.
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