As the year draws to a close, it's an opportune time to evaluate the potential trajectory of the dollar going forward.
From a broader perspective, we anticipate a regime shift for the dollar in 2024, potentially marking significant turning points for the major dollar pairs. Notably, since the 1990s, each instance when real rates crossed the 1% threshold, the dollar experienced an average sustained fall of approximately 18% over around 340 days. The combination of aggressive hikes and lower inflation has now pushed real rates clearly above the 1% mark, but the dollar’s reaction thus far has been rather muted when considering the past 3 reactions.
This observation aligns with our cyclical analysis of the dollar. Historically, the dollar index has demonstrated a recurring cycle of approximately 3.5 years, often bottoming out at the end of most cycles.
Furthermore, the dollar index has recently dipped below the crucial 103 resistance level, a significant benchmark since the 1990s.
In light of a potential weaker dollar in 2024, we're exploring various strategic positions. At present, the NZDUSD pair, in particular, stands out due to its compelling technical setup and policy divergence.
Currently both the AUDUSD and NZDUSD are testing their 3-year resistance levels.
Given the current inflation and interest rate scenarios, we find the NZDUSD pair more appealing. New Zealand's inflation rate remains relatively high compared to the US, while their policy rates are almost identical. Moreover, the Reserve Bank of New Zealand (RBNZ) maintained its hawkish stance in the last Monetary Policy Committee meeting, whereas the Federal Reserve has begun hinting at possible rate cuts in 2024. Such divergence in policy should favor the NZDUSD pair as rate differentials shift towards the NZD.
Hence, considering the weaker outlook for the Dollar in 2024, combined with the technical setup in the NZDUSD's price action and the emerging policy divergence, we lean bullish on the NZDUSD. To express this view, we can go long the CME New Zealand Dollar Futures at the current price level of 0.6247, take profit at 0.6800 and stop at 0.6050. Each 0.00005-point move is 5 USD.
With that, we wrap up our last piece for 2023. We wish everyone a Merry Christmas and a Happy New Year!
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com/cme/
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference:
www.cmegroup.com/mar...r.contractSpecs.html
From a broader perspective, we anticipate a regime shift for the dollar in 2024, potentially marking significant turning points for the major dollar pairs. Notably, since the 1990s, each instance when real rates crossed the 1% threshold, the dollar experienced an average sustained fall of approximately 18% over around 340 days. The combination of aggressive hikes and lower inflation has now pushed real rates clearly above the 1% mark, but the dollar’s reaction thus far has been rather muted when considering the past 3 reactions.
This observation aligns with our cyclical analysis of the dollar. Historically, the dollar index has demonstrated a recurring cycle of approximately 3.5 years, often bottoming out at the end of most cycles.
Furthermore, the dollar index has recently dipped below the crucial 103 resistance level, a significant benchmark since the 1990s.
In light of a potential weaker dollar in 2024, we're exploring various strategic positions. At present, the NZDUSD pair, in particular, stands out due to its compelling technical setup and policy divergence.
Currently both the AUDUSD and NZDUSD are testing their 3-year resistance levels.
Given the current inflation and interest rate scenarios, we find the NZDUSD pair more appealing. New Zealand's inflation rate remains relatively high compared to the US, while their policy rates are almost identical. Moreover, the Reserve Bank of New Zealand (RBNZ) maintained its hawkish stance in the last Monetary Policy Committee meeting, whereas the Federal Reserve has begun hinting at possible rate cuts in 2024. Such divergence in policy should favor the NZDUSD pair as rate differentials shift towards the NZD.
Hence, considering the weaker outlook for the Dollar in 2024, combined with the technical setup in the NZDUSD's price action and the emerging policy divergence, we lean bullish on the NZDUSD. To express this view, we can go long the CME New Zealand Dollar Futures at the current price level of 0.6247, take profit at 0.6800 and stop at 0.6050. Each 0.00005-point move is 5 USD.
With that, we wrap up our last piece for 2023. We wish everyone a Merry Christmas and a Happy New Year!
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com/cme/
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference:
www.cmegroup.com/mar...r.contractSpecs.html
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