U.S. Dollar Forex Forecast for 2010

As the year draws to a close, it is time to begin thinking about the possibilities for next year. Many are turning their thoughts to the U.S. dollar forex forecast for 2010 and wondering what the future might hold. Action Forex offers these thoughts about the outlook for the U.S. dollar in currency trading:

The dollar outlook is generally positive on valuation grounds with the currency under-valued on a medium-term perspective.

The overall US fundamentals will still be weak and there will be expectations of longer-term flows away from the currency. With central banks under pressure to diversify currency reserves away from the dollar, this will increase the pressure for private-sector flows into the US.

The attitude of US investors will be extremely important. If they scale-up purchases of overseas assets then the dollar could be subjected to heavy selling pressure. If US investors are more cautious and there is significant capital repatriation, then the dollar could gain firm support.

Indeed, if the U.S. dollar can find some support through the economic recovery, it should be able to maintain for quite some time. This will depend largely on whether or not investors and others feel that the U.S. government can manage its debt obligations resulting from economic stimulus.

Another issue is to do with comparing the greenback to other currencies, like the euro. The eurozone is experiencing its own economic recovery troubles, and the dollar could benefit by being better at recovery than the eurozone.