Although US Dollar has mellowed after a disappointing October NFP, it generally is still on a bullish bias on major pairs. However, currently there are a number of reasons that might lead US Dollar down for the next few weeks.

Although US Dollar has mellowed after a disappointing October NFP, it generally is still on a bullish bias on major pairs. In the last month, all major currencies depreciated against the Greenback although commodity currencies has signalled pullback. However, currently there are a number of reasons that might lead US Dollar down for the next few weeks.

 

Seasonal Slowdown

US Dollar phenomenal strength in the last two weeks is mainly driven by two fundamental factor, they are the hawkish October FOMC and Republican winning on US mid term election. The Republicans are well-known in their opposition against The Fed's Quantitative Easing. Therefore, market players think that politicians in the senate will push the Fed to hike rate sooner. Such scenario surely will happen, especially if US economic reports continue to show improvement.

But it needs to be noted that snow has started to fall in Montana and some other states, while the US economic stats infamously known to fall during the winter. For the time being, weather forecast expected an ordinary winter, but there is still possibility that it will worsen later. In the circumstances, we have to remember that during last year polar vortex, US economic reports, most notably NFP, came out surprisingly bad.

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Winter in some parts of the USA could weaken US economic data in the fourth quarter of 2014. October figures that will be reported this month is possibly still improving, but trader needs to prepare for weakening November and December stats that will be reported on from December to January.

 

Beware Of Short Term Correction

In the short term, there are at least three key points that might disrupt USD bulls.

First, US Dollar is in state of prolonged overbought on major pairs. EURUSD, GBPUSD, AUDUSD, NZDUSD, and USDJPY on hourly chart has shown overbought profile for the global currency.

Second, 10-years US Treasury yields is still low although hawkish FOMC statement and Republican win point to sooner the Fed rate hike. Latest record of 10-years US Treasury was at 2.36%, significantly lower than psychological treshold of 2.5%. It needs to be noted that the better economic prospects of a country, then the more people will seek its bonds, and boost demands on the currency that will be used to buy the much-requested bonds. The low US treasury yields indicate low demand for US-denominated asset that is certainly show low support for USD movement to the upside.

Third, scant economic data releases from the US this week has dropped trading volumes and volatility in the market. Fundamental calendar only recorded three moderate-to-high influence report scheduled near the end of the week: Thursday's weekly initial jobless claims, and Fridays's retail sales data and Michigan consumer sentiment. Initial jobless claims is forecasted to rise from 278,000 to 282,000, while retail sales is predicted to improve from -0.3% to 0.2% (MoM) and Michigan consumer sentiment from 86.9 to 87.5. Be aware that if actual figures are off, then it might trigger a considerable movement, although it also depends on how US Dollars rivals strive in the heels of the latest fundamental economy reports.

The circumstances increase the risk of US Dollar correction in the short term, although it is still bullish in the long term due to the Fed rate hike projection in 2015. Short term traders need to be careful in selling the EURUSD and buying the USDJPY. On the other hand, it means that there are opportunities to sell teh EURUSD from higher levels and to buy USDJPY from lower prices.