US Dollar Index Forecast: Every Hike Takes Us Closer to Cycle’s End

US Dollar Index (DXY) Rate Forecast Key Points:

  • The ONE Thing: The Federal Reserves FOMC meeting will allow traders to glimpse into 2021 projects for the first time, and has the Fed meeting with an expectation to raise rates and signal more in the future despite yields being at cycle highs. The dovish risk (US Dollar downside) that traders should note is whether the 2021 DOT is in lockstep to the 2020 median dot or communication about policy no longer being accommodative.
  • Correlation analysis to EUR/USD (57.6% weighting of DXY) and Euribor time spreads (market expectations for ECB rates in 2019) seem to show itself as a bigger driver of USD and EUR/USD than what has already been priced in from the Fed’s DOT Plot.
  • Institutional US Dollar long positions remain at 1yr extremes of long positions despite the recent pull back. Extreme non-commercial positioning tends to be susceptible to changes in outlook. In other words, any dovish surprise could lead to a sharp US Dollar repositioning that favors downside in DXY.
  • Technical Outlook on the US Dollar: The US Dollar has retraced 38.2% of

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