Bullish Dollar with elevated downside risks

Bullish Dollar with elevated downside risks

The US House of Representatives fail to pass the healthcare bill last Friday, raising thereby concerns on whether Trump’s other more important plans on tax cuts and stimulus measures will get executed smoothly, resulting in a big drop in the dollar.

But the recovery started with profit-taking on the short positions and also due to the positive data released. US consumer confidence jumped to its highest level since 2000, and pending home sales rose to a three-year high. Today, the dollar is gaining new support with the US administration’s decision to make a new attempt to pass the health care bill.

The dollar remains strong and the US economy is still the strongest but the Dollar’s downside risks are increasing. The markets have priced all promises, improvements and positive data, whether from tax cuts or government spending or even the interest rate hikes that will be applied for two additional times this year, so there are no additional motives that would support the greenback significantly. On the other hand, as the markets have priced all these improvements, any negative news will lead to a sharp decline in both the Dollar and the US stock market.