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Sunday October 2, 2022 - 20:10:56 GMT -

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What's Next for the US dollar: Up or Down?

With the dollar correcting off multi-decade highs vs. the EUR and JPY (and a record high vs the GBP), the forex market seems to have reached a crossroads. The factors pushing the dollar higher are still there but central banks, the latest being the Bank of England, which intervened in the bond market (I would not be surprised to learn it has been in the forex market as well), havefor now restored a two-way risk to what had been a one way street in the market.

So, the question is what comes next?
In this regard, one of our highly and long-time forex forum members posted the following, which represents his view, NS IA QWORTG REPEATING:

swiss frank 11:25 GMT 09/30/2022
Hk Ab 16:56 GMT 09/29/2022
With usd index at here, one major should start the mega retracement soon, which major will make the master turn first? Eur, gbp or yen?

View appreciated.

I'll bite.

1. It's been a higher than usual period of volatility going into quarter end. Quarter end flows are often not the best moves to justify a fundamental bias.
2. Given the extended and even over extended nature of the USD rise it has been very ripe for a correction.
3. The more over extended, the bigger the correction.
4. Sentiment was massively aligned with USD strength.
5. The correction of this past week has relieved all of the above to a healthy degree. Sentiment is more balanced, as well as technical indicators.
So- What has changed (or not)?
1. Int rates are still very largely in favor of and forecast to be in the USD favor.
2. US continues with quantitative tightening at the same time as monetary tightening. Fewer USD + higher rates= more demand.
3. EU and UK have embarked on the confusing policy of raising rates and continuing quantitative easing? Because..... They have to?
4. The war in the Ukraine shows no sign of slowing. Capital flows often being driven by fear, fear an escalation by Putin, not capitulation.
5. Energy flows are possibly going to be more stressed with recent attacks on Nordstream 1.
6. Martin Armstrong (like him or not) has been pretty right on a lot of the events that have unfolded over the course of the past year. He sees an escalation of current trends into 2023.

My personal view is for continued USD strength to significantly higher levels. EUR/USD .80-.85 GBP/USD <1.0000 USD/JPY 165



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