The US dollar is currently on a strong upward trajectory, driven by the market’s anticipation of a potential Trump victory in the upcoming US elections. While we’re still a couple of weeks away from the election, the market is already pricing in this possibility, leading to a significant rise in the dollar’s value.
However, the key factor driving the dollar’s strength lies in the direction of US Treasuries. Currently, we’re witnessing a five-wave decline in US Treasury yields, starting from their September highs. This indicates a strong downward trend, which is expected to resume after any minor corrective rallies.
With US Treasuries heading lower, the US dollar is likely to continue its upward climb towards the 107 resistance zone. While this level might provide a significant hurdle, there are still opportunities for traders to capitalize on the dollar’s strength, especially during intraday pullbacks.
Shifting our attention to EURUSD, we observe a weakening euro due to the dovish stance adopted by the European Central Bank (ECB). The ECB is anticipated to implement further rate cuts, reflecting concerns about the state of the European economy. Germany, the powerhouse of the European economy, is facing challenges, while the US economy continues to perform relatively well, contributing to the rise in US yields. This divergence in economic performance makes the dollar more attractive compared to the euro, and this dynamic is expected to continue, creating potential short opportunities in EURUSD.
However, traders should be cautious and wait for a potential rebound in EURUSD to the 1.0880 to 1.0950 area before considering short positions. The key is to wait for rallies, avoid chasing the market downward, as price movements have been sharp and primarily in one direction.
Trading with the trend is crucial, but it’s important to exercise patience and wait for a pullback before entering trades. This approach allows traders to capitalize on momentum while managing risk effectively.
