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Some key market metrics are starting to suggest the Trump-inspired rally in the dollar may have plateaued, as bullishness fuelled by the US election wanes.
Bloomberg’s gauge of the currency fell for a third day on Tuesday after rising to a two-year high last week.
Momentum indicators are signalling further upside may be limited in the short-term. Investor flow has become less one-sided, according to traders, and views about the currency’s direction are starting to become more circumspect.
“The strong-dollar trend after the US election is certainly entering more choppy waters,” said Antony Foster, London-based head of Group-of-10 spot trading at Nomura International Plc.
The world’s reserve currency has been rallying since late September, fuelled in part by President-elect Donald Trump’s plans to raise tariffs, and concern his agenda will boost inflation and deter the Federal Reserve from cutting interest rates.
The Bloomberg Dollar Spot Index is up 5,3 percent this year.
On the technical side, the dollar’s slow stochastics, a momentum indicator, signal the currency has reached so-called overbought territory. JPMorgan Chase & Co’s emerging market FX Risk Appetite Index triggered a short dollar signal at the November 15 close, according to Niraj Athavle, head of sales and marketing at the bank in Singapore.
Investor views about the fundamentals of other major currencies are also a factor.
The euro has bounced off support at US$1,05 after a three-month retreat. Additional technical support for the single currency sits at its 2023 low of US$1,0448.
“The sentiment toward the euro here is very mixed, with some talking about parity and below, and others believing this is the dip to buy,” Nomura’s Foster said. “We have seen quite a few accounts taking profit on euro shorts, but by no means all accounts.”
The dollar is also struggling to advance past 155 yen, even though Bank of Japan Governor Kazuo Ueda avoided giving a clear hint on Tuesday that he will raise interest rates at the central bank’s December meeting. -Bloomberg
Online Reporter