What is behind the dollar growth? Forex Market Trading Plan

24 Apr 2019

Yesterday's dollar growth took many by surprise on the foreign exchange market. The dollar index has reached its maximum in the last couple of years. Let's try to understand the reasons for this growth, as well as reflect on the near future of the US currency and trading tactics.
There were several suggested explanations for the growth of the dollar by leading analysts and traders. One of them - the rise in prices on the oil market will trigger an increase in inflationary pressure in the United States. In turn, the unwinding of the inflation spiral will force the Fed to reconsider its current position in relation to rates. The process of raising them will be removed from the pause and the Central Bank will continue to increase the rate.

Another reason for the dollar growth, voiced by analysts, was the expectation of good statistics on US GDP for the first quarter and the current strengthening of the US currency - an attempt to discount for good data.
As we see, both explanations are outside the plane of facts and, in fact, are trading on expectations and rumors. That is, the markets routinely “buy” rumors, so than to sell the facts.

In this regard, we are extremely skeptical about the prospects for further growth of the dollar in the foreign exchange market. At least, till growth begins to be based on facts. For example, will excellent data on US GDP will actually come out? Or the Fed will make some real statements and actual actions? So far this week, data on sales of new homes in the United States (reached the maximum for the last year and a half marks: + 4.5% with a forecast of -2.7%).

Note that the dollar growth has also contributed to the weakness of its main competitors. The euro was declining due to problems with Italy (rating agencies may downgrade Italy), the pound was traditionally “upset” because of the lack of progress in Brexit (according to rumors, Theresa May is serious about voting on the Brexit bill again, on the next week, considering that nothing radical it was not included in it, the chances for another failure are very high), the Swiss franc and gold were falling because of the general growth of investors' “appetite” to risk, and their exit from safe-haven assets.Thus, our position on the dollar remains unchanged - we will continue to look for points for its sales in the foreign exchange market. And we will do this in double volumes with obligatory and rather rigid stops. However, the size of potential profits justifies such a risk.

In relation to the news, the following day is interesting because of the meeting results of the Bank of Canada. The Central Bank is likely to leave the parameters of monetary policy unchanged. But the recent rise in oil prices has definitely played into the hands of the Canadian dollar. So, we recommend watching USDCAD- current quotes look exceptionally attractive for its sales. Our trading plan for today is USDCAD sale from 1.3450 with stops above 1.3520 and profits around 1.33.

Despite the fact that we are going against the current “will” of the market, today we will continue to look for points for selling the dollar against the euro, the pound and especially the Canadian dollar. We will wait for a little with buying of gold, but we will look for points for buying oil on the intraday basis.