US Dollar Q1 Fundamental Forecast: USD Buffeted By Market Volatility, Fed, Politics

The Dollar managed another advance through the final three-month period to close out 2018. Though, activity through the quarter was somewhat misleading as the fundamental backdrop was exceptionally tumultuous with several conflicting themes and complications making it difficult for the market to establish a clear beat on what exactly would prevail in establishing a trend for the world’s most liquid currency.

Heading into 2019, the Greenback will continue to be buffeted by systemic crosswinds that could cater to its more elementary fundamental roles or alternatively see capital diverted by unique stability risks. One thing looks certain, the first quarter of the new year will be facing an environment of high volatility. That is the investor term for ‘uncertainty’, which holds obvious risks but also a few possible benefits. The political and geopolitical environments represent more profound risk to the US economy and currency, while more traditional considerations of cooling GDP could further undermine the Federal Reserve’s intentions to further tighten policy. On the other hand, with utter fear comes the panicked demand for absolute liquidity for which the Dollar still holds the undisputed title. When it comes to projecting the US currency’s course, a healthy appreciation of the technicals and the question “just how intense are market conditions” will prove the best compass.

POLITICAL RISKS ARE BUILDING BETWEEN TRADE WARS AND INTERNAL GOVERNMENT STANDOFF

When money is at stake, emotions can run high. Successful investing often depends heavily on removing emotions from decision-making to instead fall back on balanced analysis, an empirically-derived trading strategy and sound money management. In the strata of those topics that can aggravate sentiment, politics is arguably one of the most provocative. As such, it is best to keep politics out of your evaluation for the market environment unless it holds an obvious and systemic influence over the health of the economy and financial system. We seem to be facing exactly those circumstances.

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Disclosure: See the complete Q1'19 US Dollar forecast as well as forecasts for the other major currencies, ...

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