US Dollar Outlook Bullish Ahead of State of the Union Address

US DOLLAR FORECAST, TRUMP, STATE OF THE UNION ADDRESS – Talking Points

  • US Dollar may gain on Donald Trump’s State of the Union address
  • Hints at expansionary fiscal policy may cool 2020 Fed rate cut bets
  • Cooling coronavirus concerns could cause USD to rise with stocks

ASIA-PACIFIC RECAP: RBA RATE DECISION BOOSTS AUSTRALIAN DOLLAR

The Australian Dollar jumped over half a percent after the Reserve Bank of Australia announced that it is holding interest rates at an all-time low at 0.75 percent. Officials did note that uncertainties relating to the US-China trade war continue to persist and warned that the impact of the coronavirus and bushfires will temporarily weigh on economic growth.

AUD/USD – Daily Chart

AUD/USD chart created using TradingView

US DOLLAR FORECAST: USD EYES STATE OF THE UNION ADDRESS

The US Dollar may get a tailwind from US President Donald Trump’s State of the Union address if the Commander in Chief reveals expansionary fiscal plans as markets brace for the 2020 Presidential election. At the World Economic Forum in Davos, Switzerland, Mr. Trump alluded to a middle-class tax cut plan which he plans to unveil in 90 days. It is possible he may take this opportunity to reveal a little more about it.

Overnight index swaps are currently pricing in almost two 25 basis point cuts from the Fed by the December meeting, though the timeline for easing could be pushed back by hopes of future stimulus. However, this may be a far-fetched dream since it is unlikely he will be able to push through any major reforms this year as he focuses on the election.

Chart showing Federal Funds Rate

Better-than-expected ISM data for January may have helped cool Fed easing expectations after the prior manufacturing statistics reported their softest readings since 2009. Following the release, US 10-year Treasury yields (yellow line) spiked with the DXY US Dollar index (green line) at the expense of gold prices (orange line) and EUR/USD. It is possible markets may see similar price action after Mr. Trump delivers his address.

US Dollar Index, 10-Year Treasury Yields, EUR/USD, Gold Prices – Daily Chart

Chart showing EUR/USD

EUR/USD chart created using TradingView

US DOLLAR TECHNICAL ANALYSIS

The US Dollar index recently staged an attempt at re-mounting the January uptrend, though its failure may now precede a turn lower and catalyze a selloff until the Greenback hits support at 97.09. Buyers may swoop in at this level and overwhelm the downside force of sellers. If a bounce back ensues, we may see DXY aim to clear former-support-turned resistance at 97.35 where it recently stalled.

US Dollar Index – Daily Chart

Chart showing DXY

US Dollar chart created using TradingView

US DOLLAR TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

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