2023 Outlook on USD
2023 Outlook on USD
USD: Bullish above 102.00
Fundamental perspective:
Markets quickly fell in line with the Fed’s stance of “higher for longer” regarding rates, causing the dollar to rally at the start of 2023. The US economy continues to show strength despite the Fed’s tightening, surprising market watchers. After SVB’s collapse, traders have reversed earlier bets that the peak terminal rate will reach 6%, expecting the Fed to loosen liquidity and hence contributing to the dollar’s weakness.
Despite the strong economy, expectations are for the US to tip into a recession in 2023, while the World Bank cut its forecast of global growth to the lowest in 30 years, excluding 2009 and 2020. If the most-anticipated recession in recent history does materialize, we expect the Fed to pivot quickly, weakening the dollar. Given the weak global economy, the US is expected to outperform its peers this year, providing some support to the dollar as investors flock to US assets. The resilience of the US economy is likely to outweigh the decreasing rate differentials between the US and the world, especially when many emerging countries are on the verge of defaulting on their debt due to the strong dollar. The strong risk-off sentiments this year will also lend strength to the dollar. Still, we are aware that downside risks remain high in the year ahead, especially if the US economy sputters or if there is broad, uniform global growth after inflation is tamed.
Technical perspective:
On the monthly time frame, prices pulled back from September’s high which coincides with the resistance zone at 113.20 and is currently testing the support zone at 102.00. Prices are also showing bullish order flow with the break of the last high in February 2020. However, we do note that there is a support zone at 95.20 which also coincides with the monthly ascending trend line and a deeper pullback to this zone is possible if prices fail to hold above the support zone at 102.00. The Ichimoku cloud is showing signs of bullish pressure as well.
| S1 | S2 | S3 | R1 | R2 |
| 102.00 | 95.20 | 90.20 | 113.20 | 121.50 |
