This article is written by Ville Vainio.
ABOUT THE AUTHOR: Ville Vainio is an Elliott Wave Analyst, director and sole proprietor of vivaico ltd., a Finland-based market forecasting company specializing in the forex markets.
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The US dollar has been one of the best-performing currencies lately. The dollar has gained persistently in all major counterparts. The Dollar Index started at 79.00 last May and now reads at 94.63 with the high of 95.53 from a few weeks ago.
The EUR/USD has strengthened over the last nine months from a near 1.40 to 1.14 and the USD/CAD had an almost vertical advance from 1.07 (May 2014) to almost 1.28 (Jan 30, 2015).
Is This Trend Going to Continue?
The majority of economy news coming from the US has been below expectation for a long time. Jobs data is the exception, but when you look beyond the numbers, this picture is not so good after all. Despite the data, the dollar has stretched its gains and continued on a very strong path. I anticipate this has now come to an end. I think that some of the USD crosses have already turned around and that the majority of them are about to turn very soon. Also, I believe that the economic situation is going to worsen and the jobs data will follow the trend of other news.
What about the EUR/USD? There are major problems in the eurozone as well! It is true that there hasn’t been much good news coming from the eurozone either, but the psychology in the US has been very positive. Everybody and their brother has heard that the economy is strong and the recovery is finally here. When bad economic data forces this mood towards negative territory, there could be a volatile trend change in the US dollar.
The EUR/USD has become the “sure thing” trade and everyone has joined this trend. When the trend becomes a “sure thing” it means that there is hardly anyone on the other side of the trade. This is just like the situation in the EUR/USD where there are hardly any euro bulls around. This is when the trend changes and the euro turns around. I expect this to happen very soon with the EUR/USD. Add to this mix the worsening US economic picture and you have a probable trend change for the dollar.