Trump won the election and the pollsters were wrong again just as they were in 2016. Just as in 2016, the month leading up to the election was a great one for us as the USD soared higher but where to do we go from here is there more upside to come or will be see a major correction? Our view is while a little overbought in the short term corrections are buying opportunities.

While the USD is a little overbought, we only expect minor pullbacks and expect them to be buying opportunities. The economy is cooling but still remains in better shape than its rivals, Trump's policies will be pro-growth and also inflationary which will keep the Fed cautious about interest rate cuts. We also have many geo-political problems in the background which could boil over and give more support to the USD. 

So far this week, we have seen signs of active engagement in a new dollar bull trend after the dip after the election result. Traded levels of volatility are rising notably as it looks like the market is actively positioning (investors) or hedging (corporate treasurers) in expectation of a stronger dollar. At present we think the “trend is your friend” and we are not looking for a big reversal but a short-term correction of overbought which would be a buying opportunity in our view.

The labor market should remain firm and also consumer spending (which accounts for 70% of GDP) will underpin the USD - Views of Goldman Sachs and chart below...

"...at the core of the US economy still lies the consumer. Today's stronger consumer sentiment reading from the University of Michigan was encouraging. And even before the election and the latest survey, Manuel Abecasis set an encouraging tone for the outlook for consumer spending in 2025" This also means no big deterioration in the jobs market.

The direction of the economy and the labor market are important to the Fed but so is inflation which remains elevated above the Fed’s 2% target.

Core inflation has gained momentum and shown signs of broadening in recent months. Service inflation remains above its usual trend and goods deflation remains below it usual trend. An easy policy with aggressive interest rate cuts could risk keeping service inflation above its usual trend and trade tariffs could prevent already large goods deflation from occurring in the future.

Trump has proposed repealing permanent normal trade relations for China, which would raise the effective tariff rate on imports from China by up to 40 percentage points.

Trump has also muted the idea of a 60% tariff on all Chinese goods. Trump has even proposed a universal tariff of between 10-20%. Trump's exact policies remain uncertain, but it seems likely that targeted tariffs on certain countries and products – such as China, EU, and Mexico and specific imports like autos could be targeted. So with inflationary pressure still strong, the Fed must remain cautious. We have a decent yield on the USD and this and uncertainty about what Trump will do should keep the big USD uptrend intact into the New Year.

Sentiment 

We have seen USD speculative longs increase but they are not extreme however they do warn of a near-term pullback which would be a buying opportunity in our view.

Technical Analysis 

Our view of the big levels of support and resistance to look out for on the daily and monthly charts below.