Would the US dollars Rally, again? Inflation in Japan soared to the highest levels in more than 30 years, to 3.7% in October, up from 3% printed a month earlier.

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Why the USD is Poised?
Traders Prepare for Potential Dollar Rally

Why the USD is Poised?

This is great news for traders and investors as it indicates that the Japanese economy is growing at a healthy pace.
The inflation rate is expected to remain high in the coming months,
which will provide ample opportunities for profit-taking.

High inflation prints sure revived the Bank of Japan (BoJ) hawks and the calls for a policy rate hike,
but it’s unsure whether the BoJ will give up on its ultra-soft policy stance.
Therefore, if the USD picks up momentum against JPY,
which will certainly be the case if US data continues to surprise to the upside as it has been recently,
then USDJPY could easily rebound back above its 50-DMA near 145.

The US dollar has been on a roller coaster ride in recent months,
but I believe it is poised for a recovery.

Here are three reasons why:

Most Fed members remain relatively hawkish regarding the Fed’s policy tightening.
This means that they are still supportive of higher interest rates,
which should help to support the value of the dollar.

The U.S. economy continues to outperform many other developed economies around the world.
This relative strength should eventually start to translate into
more demand for dollars as investors seek out safe havens during periods of global economic uncertainty.

Although geopolitical risks abound, the United States remains one of the most stable countries in the world.
This stability is often underestimated by investors,
but it ultimately supports higher asset values and helps to attract capital flows.
All things being equal, this should benefit the dollar.

Plus, options traders are building a topside structure over the one-month tenor that covers the next US inflation report
and the Fed’s next policy meeting in December.
The move suggests they see scope for a near-term rally in the dollar as these key events approach.

Traders Prepare for Potential Dollar Rally

On Wednesday, data showed that US consumer prices rose moderately in October,
underpinned by higher costs for healthcare and rental accommodation.
This was enough to keep alive expectations that inflation will pick up towards the end of this year
as energy prices rebound from their slump earlier in 2020.

Meanwhile, minutes from the Fed’s last policy meeting suggested that officials are comfortable
with leaving interest rates on hold at current levels
until they see “substantial further progress” on their goals of full employment and 2% inflation.
With both these key event risks looming large,
it’s no surprise to see options traders positioning for a potential dollar rally over the coming month.

In the UK, the autumn budget statement went happily eventless.
Gilts rallied, the pound saw limited sell-off,
while energy companies’ reaction to windfall taxes remained muted.
This was all good news for traders and investors alike as it showed
that the UK economy is still on track despite Brexit uncertainty.

Would the US dollars Rally, again?

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