USD Outlook – Strategic vs. Tactical Views

FXMETHODS Research highlights a divergence between long-term structural risks and short-term trading opportunities in currency markets, particularly for the U.S. dollar.

Key Points:

🔹 Long-Term View – Bearish USD

• FXMETHODS warns of a potential balance-of-payments crisis, which could mark a major regime shift in the currency markets and weaken the U.S. dollar structurally.

• They argue that U.S. exceptionalism is fading, leading to a shift away from U.S. assets.

• Strategic investors with longer time horizons are advised to "sell on strength," using dollar rallies as opportunities to reduce exposure.

🔹 Short-Term View – Tactical Long USD

• Despite long-term concerns, FXMETHODS notes that technical indicators currently favor a short-term rebound in the U.S. dollar.

• For 3–6 month investors, they recommend reopening long positions on the dollar.

• The dollar is seen as oversold, suggesting a tactical opportunity for a bounce.

🔹 Currency Insights

• Overbought currencies: British pound (GBP), Norwegian krone (NOK), and euro (EUR) – likely due for corrections.

• Neutral currencies: Japanese yen (JPY), New Zealand dollar (NZD), Australian dollar (AUD).

• FXMETHODS specifically recommends a short position on the GBP, long position on the USDINR citing technical overbought conditions.

Conclusion

FXMETHODS maintains a long-term bearish stance on the USD due to structural imbalances, but tactically supports short-term dollar strength. Investors should differentiate between strategic asset allocation and tactical trading signals, using dollar rallies to reposition portfolios accordingly.