Traders completed the last trading week, closing long positions on the US dollar. Starting from Monday, traders are braced for a turbulent week ahead. The ongoing developments can be explained like in the anecdote. How can one become a successful analyst? The answer is that higher volatility accounts for any unclear event in the market. Indeed, global financial market are now trading with extreme volatility. The US dollar index shed 20 pips in the early Wall Street trade. A few hours later the index spiked 40 pips. The index was trading at near 95.90 in the early North American session. Let’s try to find out plausible reasons behind this hectic trading.
It makes sense to consider its European counterpart as the greenback’s value is correlated by 60% with the market attitude to the euro. At present, the euro has come into a nosedive. Traders are fretted about a policy update at the ECB meeting slated for Thursday. The conflict between the EU and Italy over the budget deficit has not been settled yet. Meanwhile, speculators are taking advantage of the situation and opening short deals on the euro.
Another currency which also contributes to the value of the US dollar index is the pound sterling. The British pound is rapidly losing ground, heading for the lowest level in a month. The pound/dollar pair touched 1.2970 in the late European trade. Perhaps, the pound is on track for new lows. In the UK, protesters gathered for the big demonstration to demand another referendum against Brexit. Theresa May has been targeted by her party fellows. Thus, the pound sterling has fallen prey to political pressure which scares off investors.
Obviously, traders expect the US dollar to resume a rally this week.