The USD in a ConundrumThe USD at the start of the year was trading near the 100 lvl but has managed to push above the 106 lvl in a little over a few months. If price is able to break out of the 107 lvl, there isn't to many resistances for the USD to break (the 108 could be one) and price might be able to hit the 114 lvl made in 2022. With the CPI data coming in a little higher then expected and traders/investors/analysts speculating that the FED will likely hold off on reducing rates (currently, FED Rate Monitoring tool is showing a 71.7% chance of FED holding rates), the elections coming up, conflicts in the Middle East/Europe/Asia, continued government spending (which keeps increasing), not enough government revenue which leads to more borrowing, this puts the FED between a rock and a hard place. Will the FED continue to hold rates and potentially push the economy to a recession (and a real one not one that did happen but supposedly didn't happen, back in 2022 Q1/Q2) or continue on with lowering rates, keep the economy going and potentially cause inflation to spike? Either way it is No Bueno.
What is interesting is how commodities such as Gold/Silver/Oil are pushing up higher while the USD pushes up higher. These products are typical non correlated to each other, yet, currently they are. The USD shot up to 106. Silver from the start of the year pushed up from near 22 to now coming close to hitting 30 before pulling back to below 28. Gold pushed lower to below 2,000 in the beginning of February and pushed above 2,440 before pulling back to 2,360. Oil began near 70 and is trading above 85. So, when things return to the mean (non correlated), either the USD will take a hit or commodities will. The main things is how much of a hit will happen. Risk assets such as the stock market are finally taking a hit as the market just kept climbing and climbing, with the DJ Futures Market pushing past 40k and finally being cracked in the beginning of April.
I am thinking that the USD might be able to hit the 108 lvl as other Central Banks are holding onto rates (just recently the ECB stuck to holding rates). If the FED holds onto current rates and other banks decide to reduce rates, the USD will skyrocket higher. If other banks decide to keep holding rates while the FED does, it will likely be whose economy can withstand the higher rates the longest.
Protect yourselves with either reducing position sizing to withstand a large move, hedge, or do not be in a trade and see if price moves how you are speculating it. I have no position on the USD or in Forex itself (I'm tied up in other trades), but I am watching this because it is part of the plan I have when my other positions in other trades are completed.
Y'all have some great trading out there.
