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The strong dollar has been one of the most eyed signals among heightened optimism in the U.S. economy. However, several countries considered it as a threat.

Several analysts are expecting the greenback to strengthen in 2017, which had extended gains by over one-third currency value since the U.S. credit downgrade in 2011.

Speculations on a better-than-expected dollar rose as the U.S. economy is likely adding an optimism for the Federal Reserve to endorse multiple rate increases in 2017. Hence, higher rates can definitely hold dollar-denominated assets, which magnets money into the U.S.  

"Right now, there is an incredible amount of pressure to sell just about every type of currency and buy the dollar," chief investment officer Christopher Stanton said.

Subsequently, Mr. Stanton is expecting the U.S. currency to appreciate against the Australian dollar, Japanese yen and euro in the coming months.  

Dollar Gains Ahead of Major Rivals

The US dollar declined on Friday’s close, but posted its fourth consecutive year of gains against a basket of major peers.  

The dollar index, which gauges the dollar’s strength against a basket of six major rivals, was up by 3.7 percent for the year.   

The index rallied by about 7.1 percent during the fourth quarter, suggesting a better-than-expected gain since the November 8 US presidential election on anticipations that US President-elect Donald Trump’s proposed plan to boost fiscal stimulus would support the currency.

However, analysts said that the strengthening dollar is expected to remain a solid next year, but the risk of dollar weakens as there are doubts on how much dollar appreciation a Trum White House will be tolerating.

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"Much depends on how the Trump presidency and the Chinese economy work out," chief market analyst Marshall Gittler said.

Analysts’ Recommendation

The dollar dropped against a basket of major rivals during the course of Friday’s session as investors took profit amid a late year rally, which has sent the dollar to a 14-year highs.

The U.S. dollar index, which gauges the dollar’s strength against a trade-weighted basket of six major rivals, declined 0.28% to finish at 102.29 on Friday, off the 14-year high of 103.65 hit since December 20.

Additionally, the index rallied by about 3.7% after surging in the fourth quarter on expectations for a faster pace of Federal Reserve multiple rate increase and boosted fiscal spending under Trump’s administration.

Current Stance of USD/JPY

The chart below illustrates USD/JPY price movement amid expectations on Trump’s administration, which is anticipated to help lift the fiscal spending.

Given a bullish tone of the pair, market participants have begun selling currencies as heightened expectations could shake the markets.

Further, the pair is currently showing an optimistic result after five straight gains, which sent the pair soaring above its previous resistance level. Moreover, the pair is testing 117.484 level as its new resistance.

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Conclusion

As the illustrative chart above shows a bullish tone on the pair, market participants are recommended to still wait on the sidelines until the pair breaks through its new resistance level.

In essence, the pair is showing a positive result and is prone to an upside bias.

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