U.S. Dollar Heading Into 2017 With A Full Head Of Bullish Steam
Tuesday December 27, 2016 08:52
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(Kitco News) - The U.S. dollar index is a basket of six major world currencies stacked up against the greenback. The USDX is a key "outside market" that has a daily impact on many other markets. Many major commodities and other products are priced in U.S. dollars on world markets. Thus, movements in the U.S. dollar index impact pricing of commodities and products for those world consumers using non-U.S. currency.
The dollar index scored a 13-year high in late-December, which is a bearish development for many raw commodity markets, including the precious metals.
However, heading into 2017, the appreciating U.S. currency could have a decreasing bearish impact on commodities. Reason: It's likely the coming new year will see generally better economic growth from the world's major industrialized countries. That means increased demand for raw commodities.
In years past, the U.S. dollar has been strong at the same time raw commodity prices have rallied.
Fundamentally, the U.S. dollar will also benefit from a likely continued tightening of Federal Reserve monetary policy (higher interest rates). And the U.S. economy is likely to be the leader on the expected upward trajectory in world economic growth in 2017.
Technically, the longer-term monthly continuation chart for nearby U.S. dollar index futures shows that price action the past couple months has produced a big and bullish upside "breakout" from a congestion area. The congestion area and the big run up that preceded the congestion area could also be called a bull flag or bullish pennant pattern on the monthly chart.
Either way, the upside breakout has bullish implications for the dollar index over the next couple years, including challenging the highs seen in the late 1990s.