The strong dollar and what it really does to your trades

Hey trader,

let me ask you a blunt question. When you take a trade, on gold, on the DAX, on EUR/USD, do you actually look at the dollar? If the answer is “every now and then”, relax, we’ve both been burned at least once.

The dollar is the remote control of the markets. You press it and it changes the channel on everything: commodities, indices, forex, gold. And right now that remote is in the hands of a man who has decided to talk tough.

The Fed shifted gears

The Federal Reserve is led by Kevin Warsh, and the message came through loud and clear: inflation is still too high. So much so that they raised their own inflation projection for 2026, the PCE, from 2.7% to 3.6%. That’s not a detail for economists, it’s a change of course.

Until recently the market was betting on cuts. Now it’s even pricing in fresh hikes, with the key meeting on the calendar for July 29. From “when do they cut” to “how many times do they hike”. You get the vibe.

Why the dollar is running

Here’s the interesting part, and it’s why the dollar is running. Careful though, it’s easy to get this one wrong. It’s not that the other central banks are cutting: inflation has spooked pretty much everyone. The ECB raised rates in June and the market is betting on another move in September, and even the Bank of Japan, historically the slowest of them all on rates, is hiking too. The whole world is stepping on the inflation brake.

The real point is a different one: within that group, the Fed is the one pressing hardest. And there’s a second engine. When tensions flare up, like now in the Middle East, money runs for cover, and the classic shelter is still the dollar. The most aggressive Fed, combined with the flight to safety: that’s the fuel driving the greenback.

And your trades, what does it do to them?

Now the practical part, because theory without application is hot air. A strong dollar, as a rule, weighs on three things you probably have on your book:

• Gold, priced in dollars: dollar up, gold under pressure.
• EUR/USD and the other pairs against the dollar: if the greenback is strong, the euro struggles.
• Indices and risk-on: high rates and a strong dollar take oxygen away from stocks.

I’m not telling you to short everything because “the dollar is strong”, that would be the usual barroom shortcut. I’m telling you something else: before you hit enter, take a look at what the dollar is doing. It’s the context. And context, in trading, is half the job.

What I’m watching from here to July 29

Three things, little theory and a lot of practice:

• The Fed’s tone as the meeting approaches. Warsh’s words move the dollar before the facts do.
• The inflation data: every upside surprise is fuel for the dollar.
• The reaction of gold and EUR/USD, which tell me in real time whether the market believes it.

July 29 is not a day like the others. You don’t have to trade it, but you’d better know it’s there. The market isn’t going anywhere: if you don’t have a clear picture, it will still be there tomorrow.

That’s it from me. If it helped, pass it to another trader who only ever looks at the chart and never at the dollar. It costs you nothing, and it might save him a trade.

Suerte Amigo!
Tiziano Brunno Tradingblog

Disclaimer: purely informational and educational content. It does not constitute financial advice or an invitation to trade. Trading involves the risk of capital loss.

Tiziano Brunno