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Andreas Zanin
Analysis | August 19, 2021

Outlook and Forecast: USD

We have been heavily bullish on the USD in recent posts and in terms of the DXY, we are expecting far more strength. In terms of a stronger USD, it will also impact on commodities and also the SP500. Our view of the fundamentals sentiment and technicals below:

“Asian stocks slumped to their lowest levels this year and the dollar hit 10-month highs on Thursday as a double-whammy of worries about global growth and an end to central bank support drove nervous investors toward safe assets.” (Reuters)

The USD was sold on the view that the huge Fed stimulus was bearish for the USD and bullish for stocks. Investors bet on a strong global recovery and bought risk assets and risk currencies but this now is ending. In fact, if we look at the USD its been generally firm since June as speculators started to exit their short positions and now there going to go long in our view:

In terms of a stronger USD, it also means weaker commodities and in a broad-based USD rally it’s the commodity currencies that will go down the most in terms of the majors AUD, NZD and CAD are all well-established downtrends that have further to run. In the minors or exotics, it’s the ZAR and MXN, which could see significant weakness.

Crude oil going down is also a warning that stocks could follow and we have already seen some weakness. Also, a stronger USD is bearish for stocks as a stronger USD hurts foreign investors. The chart below shows the SP500 against the DXY inverted:

The USD we think will continue to rally as investors look to buy it and the JPY on its safe-haven status and the SP500 is a huge bubble and could be set for a major correction which has already started which we can see on the chart below:

How overvalued is the SP500? See the chart below against Warren Buffets favourite valuation technique…

 

Research provided by LearnCurrencyTradingOnline.com

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