The new year is likely to be bearish for the US dollar, according to foreign exchange trader FXTM, driven at least in part by incoming US president Donald Trump.
The company noted that discussions regarding the EUR/USD parity dream are currently “taking the spotlight” as higher US rate prospects push the US dollar upward and “effectively cap upside gains” on the EUR/USD pair.
“With sentiment already bearish towards the pair, the divergence in monetary policy between the Federal Reserve and European Central Bank could play a key part in future selloffs,” the company said.
“Friday’s early morning mystery spike in the EUR/USD does not change the bearish view with weakness below 1.050 opening a path lower towards 1.035.”
The US dollar hit a 14-year high following Donald Trump’s “expectation-defying presidential victory”, with Wall Street also elevated to record levels.
“Early December showed some life after the Federal Reserve gifted the markets a hawkish surprise by not only raising US rates but also adopting an aggressive hiking path for 2017,” FXTM said.
FXTM said the strength of the US dollar was likely to be “a dominant theme for the first quarter of the new year” as higher rate prospects position the USD to “dominate”.
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