17 February 2019
US non-farm payrolls data due Friday may provide further support to the greenback. Photo: Reuters
US non-farm payrolls data due Friday may provide further support to the greenback. Photo: Reuters

US dollar poised for further gains

Powered by a rally in the last quarter, the US dollar posted a 3.7 percent gain in 2016, helping the unit advance for the fourth straight year.

More than a week into the New Year, the greenback retains its strength, keeping a very bullish technical formation.

Expectations of new fiscal stimulus measures from the Trump administration and faster pace of Fed interest rate hikes will continue to underpin the dollar strength in the near term.

On Tuesday, the dollar index stayed above 103.

The US central bank will release this week the minutes of the December 13-14 meeting of the Federal Open Market Committee. It will be among the things that traders will keep a close watch.

The non-farm payrolls data due Friday could also provide further support to the dollar.

Among other currencies, the pound sterling has already lost about 18 percent since June last year, when Britons voted to leave the European Union.

Britain’s new leader Theresa May has said the country will launch the EU exit procedure in March, and that the whole process of negotiations may take up to 2 years. Therefore, UK may officially leave the eurozone in 2019.

Uncertainties about the exit terms and ongoing fears about a “hard Brexit” scenario will continue to cast a shadow over the sterling.

Key support levels are 1.2081 and 1.18 while resistance levels are around 1.242-1.25.

As for the euro, it closed at 1.0513 against the US dollar last week, marking a full-year loss of 3.2 percent. The European common unit has posted three years of decline.

The 50-day moving average of 1.086 and 1.08 will be the resistance level in short term. Key support levels are 1.025 and 0.96.

Elsewhere, the Aussie dollar eased 0.6 percent against the US unit last year and closed at 0.7199. It has weakened against the greenback for four straight years.

Currently, the market is closely watching whether the Aussie will tumble below the trough last year at 0.7145.

Coming to gold, the yellow metal reversed a rally quickly after the US election, on expectations of a stronger US economy and prospects of higher interest rates.

Still, the precious metal closed 2016 with a 9 percent gain, ending a three-year losing streak.

For the near term, US$1,100-1,139 is the support zone while resistance is around US$1,155-1,183.

This article appeared in the Hong Kong Economic Journal on Jan. 4

Translation by Julie Zhu

[Chinese version 中文版]

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Sales director, Emperor Capital Group Limited; HKEJ columnist

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