Today, on October 23rd, the bullish sentiment in the market of the US Dollar is still underway. This sentiment is backed by strong economic figures coming from the USA amid weaker figures from the EU, Japan and China – other major economies.
Higher inflation in the USA (0,1% in September) coupled with lower inflation pressure in the UK and the EU contributes to higher deflation risks in Europe. At this point, the US economy looks stronger and more stable than its overseas counterparts.
For now, investors are focused on European markets and economic news to figure out the near-term prospects. They are waiting for the ECB to make the next big move after the stress tests performed within the scope of the European banking system. The results are going to be released on Sunday, October 26th. According to the preliminary data, at least 11 European banks failed.
At the same time, the ECB is currently considering the possibility of purchasing corporate bonds in case aggressive moves are needed to support the declining Eurozone economy. All of these factors create downward pressure on the common currency, thereby making the US Dollar looks stronger.
Meanwhile, the British economy is also facing gloomy predictions. According to the latest BOE meeting minutes, the British central bankers are now less optimistic about the UK economic prospects. The thing is that the current weakness of the global and European economies may eventually affect the national economy of Great Britain as well. With that said, investors now expect the first interest rate hike to be implemented by the BOE no sooner than mid 2015.
The US Dollar is likely to continue to stay strong. It may stay in the current range against the Japanese Yen as market participants are afraid of excessively high volatility in stocks and bond markets.
According to the Options Department of Masterforex-V Academy, the current rallies in financial markets give us to understand that today’s key market drivers are central bank decision rather than macroeconomic figures. Therefore, the American currency may continue its rally for some time in the near future. Still, the key driver to pay attention to is the forthcoming FOMC meeting scheduled for October 28th-29th. The markets are looking forward to the Fed’s decision on QE3 in order to define the chances of first interest rate hikes in 2015. Anyway, until the FOMC meeting, it is not recommended to open mid-term directional trades in the market of the US Dollar index.
