22.05.201809:44 Forex Analysis & Reviews: Buy dollar on correction

Strengthening of the dollar on Monday stopped on the wave and probably a partial fixation of profits. And here is the question of some people: Has the dollar not run out of steam after a noticeable rally or does it still have gunpowder in the flasks?

The recent appreciation of the US currency happened, as indicated earlier, by three important reasons. The first is the expectation of the continuation of the process of raising the Fed's interest rates. The second is the growth in the yield of US Treasury government bonds, and the third is the weakness of EM currencies. Meanwhile, the main currencies are due to a fall in expectations that the Central Bank of those countries to whom they belong will actively follow the Fed and raise the cost of borrowing.

If the process of raising interest rates is clear. The Fed based its actions on the desire to gradually cool economic growth and not allow excessive overheating of the economy. Also, restraining the likely rise of inflationary pressures, the dollar's growth is primarily supported by an increase in the yield of US government bonds that are significantly higher than the yields of government bonds of other economically developed countries. This is one of the most important reasons for the demand of dollars. In addition, the slowdown in economic growth in some countries whose currencies are traded on Forex against the "American", referring to the main ones, as well as, reducing inflationary pressures, actually bury the idea of a year ago. For example, the euro or yen or even the Canadian dollar will grow on a wave of rate hikes. But this does not happen, therefore those market players.

Well, now pay attention to the probable prospects for the dollar. In our opinion, the Fed will announce the continuation of the cycle of raising interest rates, and the profitability of the benchmark of 10-year Treasuries will be kept above the 3.0% level. the major currencies traded against it will remain "weak" while the dollar will grow. The reasons for these are due to the fundamental nature. Meanwhile, we consider it necessary to purchase the US dollar on local declines.

Forecast of the day:

The EUR/USD pair remains in the short-term downtrend. It trades below the level of 1.1795. Preserving the outlook for growth in the yield of US government bonds will put pressure on the pair. Against this backdrop, the pair may still fall to 1.1660, unless it rises above 1.1795-1.1800.

The GBP/USD pair is consolidating below the level of 1.3470, which implies a high probability of continuing its fall to 1.3300.