• As global economic risks increase, the US dollar is well positioned to benefit as a global safe haven.
  • The US dollar also enjoys a rate advantage as the US central bank has been and will likely continue to be the leader among global central banks during this tightening cycle.
  • There is no evidence yet that the USD uptrend is coming to an end.

Recommended by James Stanley

Download the full Q4 USD forecast!

At this point, the bullish trend of the US dollar goes back sixteen months. DXY was finding support around the 90 handles in May 2021 and heading into the fourth quarter, at the time of this writing, the greenback is trading above the 113 level for the first time since 2002.

I maintain the technical forecast on the US Dollar to the upside as there is no end in sight for this trend yet. Hopefully it finds resistance in the fourth quarter at some point, as this level of instability is unlikely to bring much long-term positivity for Western capitalism. And with the continued rise in the US dollar comes a host of other risks, such as higher inflation for Europe or the UK at a time when they can ill afford such a scenario.

There’s the rate dynamics that keep things bullish for the USD; but now there is also the aspect of risk aversion. And investors have the opportunity not only to follow one of the most profitable currencies in the world, but also one of the most “safe” currencies, because we find ourselves in a particular situation where the flight to quality is also correlated with the most profitable.

So while I hope we will see an element of capitulation in the fourth quarter, for the sake of the global economy, I just don’t see the evidence of it and so I’m keeping the technical forecast on the upside.

In the monthly chart below, we can see a trend that has strengthened. Perhaps the most disconcerting part of this chart is that the downtrend from 2002 to 2008 saw a 41% loss against the value of the dollar – but that was due to the Euro coming into line. It was the first time the USD had been challenged by a supranational currency, and it was the European project that was gaining global acceptance.

All of that has now been reversed and the 120 spot that provided resistance in 2002 doesn’t seem like a remote possibility.

US Dollar Index (DXY) – Monthly Period (1987 to Present)

Source: TradingView; Prepared by James Stanley

USD: commercial satellite dishes

As I write these lines, the US dollar has just climbed to a new 20-year high. As a general rule, I generally avoid chasing markets, especially ones that are already tight. But when writing a quarterly forecast, it is important to remember that there are still three full months behind this forecast and a bit of projection will be required.

But, overbought does not mean that the prices cannot rise further and, on the contrary, this reason for the creation of the overbought situation can continue to lead. The US Dollar’s weekly chart looks parabolic at this point. And the uptrend is nothing new as it has simply continued to heat up since I watched that support at the 90.00 handle on DXY in the Q3 2021 technical forecast.

There is potential for support around the 110 level on any pullback. The resistance side is a little harder to work with given the lack of recent history, but levels such as 115.00 or 117.50 remain relevant as buyers pushing the greenback to new highs may find some turbulence or pause at these psychological levels, similar to what showed around the 110.00 level during the third quarter, albeit briefly.

Dollar Index (DXY) – Weekly Calendar (June 2016-Present)

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Source: TradingView; Prepared by James Stanley

US Dollar Q4 2022 Forecast: Bullish

I maintain the technical forecast for the US dollar as bullish for the fourth quarter. There is still no sign that the trend is over, and now we have the scenario where the safe haven and flight to quality currency is also one of the top performers, so there is no end yet clear in sight and this is well illustrated above graphics.

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