Wish to maximize gains & minimize losses? You need to manage your trading risk like a pro! This 2-book bundle helps you do that without staring at the charts for hours. So why wait? Take your trading to the next level today. Click here & get your essential guides!Here’s where you can meet our top analysts and discover their trading strategies.
Let’s talk about the almighty U.S. dollar today. As the most influential currency in the forex market, it’s no surprise that nearly everyone has their eye on it.
2021 and 2022 were bumper years for the dollar. The currency rose to one of its highest levels and delivered sweet gains to those on the right side. Here’s a look:
Source: Market Traders Institute, SmartTrader
That’s a one-way rollercoaster ride up!
What led to this rise in the last two years?
Well, there are a few reasons behind this…
Interest Rate Hikes: The Fed’s historic interest rate-hiking campaign we saw in 2022 has been a major factor behind the dollar’s rise. The central bank announced five outsized interest rate hikes in 2022 and we’ve seen a couple of hikes in 2023.
Furthermore, unlike the greenback, major currencies haven’t been subject to the same rate-hike policies as the Fed’s. While major countries have raised rates, the Fed has raised them comparatively higher… and faster. And these outsized rate hikes meant the dollar rising against major rival currencies in 2022.
Safe-haven currency: The greenback also has a reputation as a safe-haven currency, which means it’s a go-to choice for investors during times of economic uncertainty or reduced risk appetite. And boy, did we see a lot of that in 2022.
With faltering growth and increased risk aversion, the dollar’s relative reliability made it a safe haven bet for many investors. On top of that, the yen, which is often considered a safe haven asset, lost favor due to Japan’s yield curve control measures and deteriorating trade balance.
Is the dollar’s rally set to continue in 2023?
To answer that, let’s understand where the dollar stands right now and whether it has peaked in its current rally. Here’s some perspective…
If you’re an average retail trader, the problem is that the price data only goes back to 2001, creating an illusion that the dollar is currently at an all-time high and has peaked its rally.
But the U.S. dollar has been around for much longer than that, and most banks and large institutions have data dating all the way back to the first dollar ever printed.
This time, let’s take a USDJPY chart with data from the 1970s…
Woah! This paints a completely different picture.
When we take a look at the real USDJPY chart, which goes back to the 1970s, it becomes clear that the dollar is nowhere near an all-time high. In fact, there’s room for potential upside if the dollar were to revert and move towards the highs seen in the 1970s.
So what could push the dollar higher in 2023?
There are a few things to consider, like the Federal Reserve’s monetary policy, debt ceiling limit, geopolitical changes, inflation, and the behavior of the housing market.
If these things remain the same as in 2022, we could see the same factors that helped the dollar in 2022 continue to do so this year.
How can traders take advantage of this information?
By understanding their own advantages and disadvantages. For instance, retail traders have the ability to enter and exit the market at their will, while big institutions that trade trillions of dollars have to execute their trades over a longer period.
Retail traders can also benefit from keeping track of key events which may have a major impact on the dollar, like the Fed’s monetary policy meetings or inflation readings, and making informed trades accordingly. It’s also crucial for traders to understand their own risk tolerance and set appropriate stop-loss and take-profit levels.
But we’re not stopping there. The impending debt limit, the de-dollarization efforts, and whatnot – it all can affect the markets in a major way. And we’re eyeing this particular currency pair for some potential profits.
Join our LIVE strategy session to follow along – click here.
And if you wish to take your trading game to the next level, check out our Forex Cheat Sheet. This sheet helps you master your candlestick charts and identify potential profitable trading opportunities…designed for simplicity! Click here to download >>
Predictions are not a guarantee of this or any result. Information provided on this prediction is for general information purposes only. We offer no representation or warranty with regard to this prediction. No prediction is personalized or otherwise directed at any individual or particular circumstances. We disclaim and will not accept any liability for losses associated with this prediction.
Some of the information presented may be provided by a third party. MTI is not responsible for any claims, products, services, or information provided by any third parties. MTI does not provide any warranty or representation as to any third party data. MTI expressly disclaims any responsibility and accepts no liability with respect to such third party information, services, and/or products. The third party data is provided for convenience only and is in no way meant to imply an endorsement by MTI or any other relationship.
Please see our full risk disclaimer.