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market analysis
Seasonal weakness in April superimposed on variables in the situation in the Middle East
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Hello everyone, today XM Forex will bring you "[XM Official Website]: Seasonal weakness in April superimposed on variables in the situation in the Middle East". Hope this helps you! The original content is as follows:
On Wednesday (April 1), the US dollar faced obvious seasonal negative pressure entering April. Historical data shows that the US dollar generally tends to weaken against major currencies during this period. But the outlook for this year is far from straightforward. Geopolitical tensions in the Middle East, high oil prices and shifting market expectations for U.S. interest rates could easily disrupt seasonal patterns. Traders must now weigh whether history will repeat itself, or whether macro and geopolitical forces will dictate market direction. Outlook for the U.S. Dollar in April: Seasonal turn to bearish, Middle East risks loom
According to the monthly data this century, the U.S. dollar index is slightly bullish overall, with 6 months closing up, 4 months closing down, and 2 months flat. However, April was an obviously weak month, with both the average yield and the median yield leaning downward.
The seasonal pattern in April points to a weakening of the U.S. dollar
The U.S. dollar index has only a 32% probability of rising in April, and closes down 68% of the time; the average return rate is -0.77%, and the median return rate is -0.8%.
The mean and median are highly close, indicating that the data performance is relatively stable and has not been distorted by extreme values. The 68% probability of decline is more meaningful.
In down months, the dollar's average decline was -2%, which was only slightly higher than the average rise of 1.8% in up months. Geopolitics will determine whether seasonal patterns hold true.
Whether the U.S. dollar will follow seasonal trends depends largely on whether the conflict in the Middle East can truly ease. Seasonal patterns reflect the average of historical results and are easily overwritten by major factors such as geopolitical shocks and economic recessions. If the conflict continues to escalate, or HallWith the Strait of Muzi remaining blocked, the U.S. dollar may buck the trend and strengthen, breaking seasonal trends.
On the other hand, if the U.S. withdraws its troops and navigation in the Strait of Hormuz resumes, traders may turn their attention back to weak U.S. employment data and reprice interest rate cut expectations, as a major source of inflationary pressure has been eliminated. President Trump is scheduled to address the nation on Wednesday night (Thursday morning during Asian time), and even if no specific policy adjustments are introduced, the market needs to be alert to potential fluctuations. If tensions ease, the impact of the upcoming U.S. ISM manufacturing and services data and non-farm employment report will be far greater than the current level.
Technical Analysis (U.S. Dollar Index Daily Chart Source: Yihuitong)
The U.S. Dollar Index closed out of a bearish engulfing pattern on Tuesday, falling from its May high. As long as the price remains above the low of 98.65, the author still maintains a bullish judgment. This point is likely to be the end point of the fourth wave adjustment.
Bulls can focus on the opportunity to pull back to the support level, and pay attention to the 20-day exponential moving average (99.46) or the weekly value point (near the 99 mark) for stabilization signals. It is expected that the fifth wave will restart the upward trend, with the target looking at 101.50, or the gap resistance level near 102. The author ultimately predicts that after the fifth wave and the larger wave C are xmmarkets.cnpleted, the US dollar will form a more meaningful stage top.
April Seasonality: Performance of Major Currency Pairs (2000 to Present)
xmmarkets.cnparing the performance of the US dollar against major currencies, the bearish tendency in April was very obvious, with the US dollar having the weakest overall performance. Whether this pattern can continue this year may depend on the content of President Trump’s speech and subsequent news on the situation in the Middle East. Expanded part (approximately 50% more content, boldface indicates new/expanded content): Generally speaking, the seasonal weakness in April is not an iron law, but a reflection of historical averages. Over the past two decades, the U.S. dollar index has indeed performed weakly in April, but this pattern is often broken when facing major external shocks. The evolution of the situation in the Middle East this year will become one of the most critical variables. High oil prices will not only push up global inflation expectations, but may also strengthen the attraction of the U.S. dollar as a safe-haven asset, especially when the market is worried about energy supply disruptions.
In addition, the U.S. domestic economic data is about to usher in a period of intensive release. Weak employment and manufacturing indicators would have strengthened expectations for a rate cut by the Federal Reserve, putting further pressure on the dollar; however, if the conflict in the Middle East causes oil prices to remain high, inflation risks may force the market to reassess the Fed's policy path or even postpone the timing of an interest rate cut, which will provide unexpected support for the dollar. Traders need to pay close attention to the tone of Trump's speech - any clear signal about the troop withdrawal timetable and the reopening of the Strait of Hormuz to navigation may trigger violent market fluctuations.
From a technical perspective, the U.S. dollar index is currently oscillating near the 99 mark. Although the short-term bearish engulfing pattern shows callback pressure, as long as it does not effectively fall below the 98.65 support, the bullish structure has not been destroyed. If geopolitical risks ease, the U.S. dollar may first test the support below and then rebound; conversely, if conflicts escalate, safe-haven buying may continue.Then push the index to challenge the resistance above 100. Overall, the trend of the U.S. dollar in April will be highly dependent on the game of macroeconomics and geopolitics. Although seasonal patterns provide a reference frame, the actual market is more likely to be dominated by emergencies. Investors should maintain flexible positioning and be prepared for potential trend reversals.
The above content is all about "[XM Official Website]: Seasonal weakness in April superimposed on variables in the situation in the Middle East". It was carefully xmmarkets.cnpiled and edited by the XM foreign exchange editor. I hope it will be helpful to your trading! Thanks for the support!
Due to the author's limited ability and time constraints, some contents in the article still need to be discussed and studied in depth. Therefore, in the future, the author will conduct extended research and discussion on the following issues:
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