Dollar Poised for Correction?

The US dollar was demonstrating amazing performance lately, rising to multi-year highs against many majors. But can the currency keep its upward momentum?

It is not an easy question to answer. On one hand, most fundamentals remain bullish for the greenback. On the other, markets rarely go straight in one direction for long. Usually, some form of correction occurs, giving traders a chance to enter an existing trend. The problem is to catch timing of such correction. It is also important not to confuse a correction with a trend change. So, should traders expect pause to the dollar’s rally this week or the currency will be able to extend its rise further?

Few economic indicators from the United States are scheduled for this week. It means that macroeconomic data will not be particularly helpful in determining dollar’s performance. Of course, this allows to expect that the current trend will persist for some time. With constantly hawkish tone of US policy makers and monetary stimulus in most other developed countries, the greenback remains appealing to investors. Indeed, DailyFX believes that dovishness of the European Central Bank and the Bank of Japan should help the US currency to remain firm:

In the lack of a decisive driver on the sentiment front, the dovish lean in global monetary policy can offer a more consistent feed to the Dollar’s rise.

Forex Crunch, on the other hand, thinks that the dollar may halt its rally against the euro this week (but continue to rise against other currencies). Yet this does not necessary mean a reversal of the trend:

A correction isn’t likely to last for too long or to go too far, but another immediate leg lower seems less likely.

All in all, it looks like the dollar will keep its strength, but traders should think carefully before entering a bullish position.

If you have any questions, comments or opinions regarding the US Dollar,
feel free to post them using the commentary form below.

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