USD Forecast: US Dollar Hinges On Virus Fear, Sentiment & Powell

  • The US Dollar notched its highest close in 17-weeks driven in part by liquidity flows as traders move into safe-haven assets and Fed balance sheet growth decelerates
  • USD price outlook for next week likely hinges on the latest coronavirus developments out of China, US consumer sentiment data and commentary from Fed Chair Powell
  • EUR/USD and AUD/USD bears set their sights on multi-year lows amid widespread US Dollar outperformance against other major currency pairs

The DXY Index – a popularly referenced basket of key US Dollar currency pairs – has climbed an impressive 2.3% so far this year to the 98.70 price level. A big breakdown in EUR/USD, which comprises over half of the DXY Index, has helped fuel broader US Dollar strength as the American economy continues to outperform.

Nonfarm payrolls data released early Friday beat expectations and underscored the solid US jobs market, which exacerbated the slide in spot EUR/USD that began in the previous trading session on the back of dismal German data.

EUR/USDBEARISH

Data provided by

CHANGE IN LONGS SHORTS OI
DAILY 6% -15% -1%
WEEKLY 27% -26% 5%

Spot AUD/USD price action has meanwhile set fresh decade lows amid sustained concern over the novel coronavirus outbreak in Wuhan, China.

Downside in the Aussie relative to the US Dollar has potential to endure if it is revealed that Chinese trade and business activity will remain on hold in aim of containing the coronavirus.

Correspondingly, this development could keep providing a positive tailwind to the US Dollar on balance as forex traders seek out safe-haven currencies.

CHART OF TOTAL ASSETS HELD BY THE FEDERAL RESERVE – FED BALANCE SHEET

USD Forecast US Dollar Fed Balance Sheet Chart

Looking to domestic fundamental factors that stand to dominate the direction of the US Dollar next week we find that Fed Chair Jerome Powell will be providing his semi-annual update to Congress beginning at 15:00 GMT on February 11 and February 12.

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