The USDX has rallied around 270 pips since the US Federal reserve hiked US interest rates for the seconded time in a decade last Thursday. The target for the USDX for this year was 103.00 and this was hit on the day of the hike. See post
From here I suspect a pull back to around 100.00 then rally up to the next target of 108.00. The 103.00 handle was a former resistance level back in mid 1998 and also in 1989. 103.00 was also a very brief support level in mid 2002. The 108.00 level is the next target level and was a former support/resistance and accumulation/distribution zone.
When a safe haven currency offers increasing yield, where will money flow? This question is the right question to ask.
The US Dollar is regarded as a safe haven currency, and typically when a safe haven currency offers equal of more yield than a risk currency money will flow into the safe havens.
In the same post a few weeks ago I mentioned in 2017 that the Feds were likely to go on a hiking frenzy, due to Trump being elected and his very pro American policies. The Feds did mention in the November meeting that they need to start hiking as fast as possible. Janet Yellen said back in 2015 that there would be as much as 4 hikes in 2016 but this did not happen.
Traders now will question the Feds credibility on its hike forecast’s throughout 2017. However if Trump keeps his promises the Feds will continue down the hiking phase.
“I for see the Federal reserve making a further 2 or 4 hikes in 2017.” November 20, 2016
Apart from fundamentals the AUD closed below the 200ma on the daily time frame on the 15th of November. It then rallied back up to meet the MA and former triangle support level. Price failed to even touch this level and sold off again. But, in reality the sell off is largely related to a very bullish USD driven by US monetary and now new fiscal policies based on Trump. The continuation of the bullish USD now lays in Trumps commitment to his policies.
The kiwi had managed to climb above the head and shoulders neckline for a number of days but while price had stayed well below the right shoulder this set up still remained in play. After the US rate hike the Kiwi sold off and once again has closed below the neckline. Price has also closed well below the 200 Moving average which now further indicates NZD weakness.
The RBNZ Governor Graeme Wheeler noted in his speech last month that the NZ Dollar is still too high but things are about to take a turn.
With the year almost at the end the comdols look to finish on a bearish note and look for further falls next year. I see another Federal reserve hike in around March next year and expect the RBA and RBNZ to leave rates on hold for most of, if not all of 2017. At this stage I don’t see any more reason for these central banks to cut rates but will remain at current low levels for some time to come.
We will continue to look at shorting entries for both AUD and NZD next year and expect the Aussie to be below .70 by April, and around .64 by the end of 2017.