US: Dollar is at crossroads - BBH

Research Team at BBH, suggests that the US dollar is at crossroads as it has retraced part of its recent rally that was ostensibly fueled by rising US interest rates and increased confidence of a rate hike in December. 

Key Quotes

“The dollar's correction began prior to the latest turn in the presidential campaign, but it has been accelerated by the polls that show the race has tightened.  Roughly speaking, the odds of a Trump presidency doubled over the past week to stand near 25% -35%. 

What happens at the technical crossroads will be determined not by economic data but political developments.  Our bullish outlook for the dollar is partly predicated on the continuation of the status quo broadly understood.  A Trump victory could potentially unhinge investors to such an extent that it disrupts the markets profoundly and through that impact the Fed's decision in December. 

The US Dollar Index fell about 1.2% last week after falling 0.35% the previous week, snapping a three-week 3.25% rally. At 97.10 it retraced 50% of the rally from late September.  The 61.8% retracement is near 96.60, which corresponds to the 50-day moving average. If that 96.60 area is given, a move back to 95.00 cannot be ruled out.  That said, the uptrend line that connects the June, August, and September lows intersects near 95.80 next Friday.”