The weekly charts already indicate a growing downward bias against the US dollar. There are signs that investors are starting to cut long positions in dollars. Previously falling assets are growing at the beginning of this week. Stocks, crude oil and Euro have risen. At the beginning of the week, the stock market was supported with Brexit news. The same news helped to support the European currency. The weakening of the US dollar has made oil more attractive to foreign traders. In general, it is safe to say that the main markets react primarily to the weakness of the US dollar.
Traders speculate that consumer inflation rates in November will be lower. This compensates for the Fed’s prediction of overheating inflation. Moreover, this is the cornerstone of the Fed’s plan to raise interest rates at least three times next ye ar. In addition to concerns about inflation, the dollar is also weakening due to comments by several Fed officials, who said that the rate increase might stop.
Thus, what we see in the stock market and oil markets is the positioning and adjustment of the position associated with the possibility of reducing the dollar value in the near term. In addition, there are other signs of adjustment. According to the latest data from the Commodity Futures Trading Commission, long-term dollar positions declined slightly. Although the pressure on the dollar began two weeks ago, the situation changed last week. The search for a safe haven, caused by a sharp fall in stock prices, triggered a demand for the US dollar.
If stocks continue to grow, the dollar may weaken as a result of the Fed’s less-tight monetary policy. Dollar sell-off may even accelerate if the Euro gets enough support from the Brexit deal and the end of the budget conflict between the European Union and Italy. A weak dollar will be bullish news for gold, as well as crude oil, Australian and New Zealand dollars.