​Watching the dollar vis-a-vis a basket of currencies has been a pleasure for binary options traders for quite some time. The uncertainty that typically dogs other currencies like the euro, the ruble, the yen and the South African Rand to name a few has been less of a factor with the US dollar since it has been leading the charge during a global downturn.

I have always advocated – at least in recent times – call options on the US dollar prior to the release of important economic data like employment readings, nonfarm payrolls, GDP and the like.

Recent economic uncertainty in China, emerging market economies and across Europe has once again put the focus back on the world’s biggest economy. That the US economy was able to withstand the Chinese meltdown, and rebound after the inimitable Black Monday is testament not only to the structural strength of the US economy, but to the confidence that international investors have in the world’s #1 economic power. That is not to say that the US economy is impervious to global downturns – on the contrary. However, economic data supports the overall consensus that structurally the American economy is sound.

US Dollar Index 28 August 2015 (5 day forecast)

The dollar gained against the euro for 3 consecutive days as economic data confirms that US GDP rose by 3.7% during Q2 2015 (economists were expecting a 3.3% increase). And that was coupled with a 3-week low in jobless benefits filings to 271,000 – a reduction of 6,000 applications for the week ending 22 August 2015. What this does is boost investor confidence in the dollar, drive demand and simultaneously reduce demand for other currencies that are being exchanged for dollars. The bulls are charging and there will certainly be a spring in the dollar’s step come September 1.

This begs the question: What will happen about the Fed interest-rate hike?

Analysts have been tempering their expectations about the September rate hike. Initially estimates put the likelihood of a September rate hike at 50% or more, but now that figure has dropped below 30%. The fact of the matter is that the global economy has not sufficiently corrected or shown the steel that it needs to warrant a rate hike. The US Federal Reserve Bank does not operate in the best interests of the global economy – it is strictly interested in the domestic economy. However the interrelatedness of global bourses will invariably impact on the US economy.

Recall that in just 2 weeks of trading, some $8 trillion was erased from global markets. This fact has hogged the attention of the financial press, and incremental gains in the USD have gained little traction or coverage.

Dollar Gains against Euro and Yen

The USD was boosted by better-than-expected data on jobs and unemployment claims. By Thursday, 27 August the dollar had rallied against the euro to $1.1245 in late trading. The dollar also hit a high against the Japanese yen of ¥121.04. What we are seeing now is greater levels of business investment and consumer spending. Several weeks ago the dollar was coming in for some tap as a result of concerns over China. Plunging commodity prices and stagnating emerging market economies have also pressured the greenback. But it is my belief that dollar appreciation will continue since the structural foundations of the US economy are sound

Of course we are waiting on the Federal Reserve Bank’s decision regarding interest-rate hikes. Currently, the US interest rate is close to 0, meaning that the cost of borrowing money is negligible. When that rate rises, investments in interest-bearing accounts in the US become more lucrative. Currency traders will see many buying opportunities here, as the safe money tends to follow the US economy. Traders will benefit by placing call options on the US dollar, or alternatively put options on the euro, sterling, yen and emerging market currencies. Even without the interest-rate hike in September or October, the dollar still looks like a very strong prospect.