There have been a number of
mixed messages around the fate of the US dollar recently. While it has been
suffering against a resilient Euro, it has managed to power ahead in relation
to the Japanese Yen. Short term bond rates have been falling to record lows
which, as we reported, is bullish for the Greenback.
The price of oil is in
decline, which normally goes hand in hand with a stronger US unit.
All of this is in the context
of the much heralded tapering of Quantitative Easing in the US .
But there is one measure of
dollar strength or weakness that continues to throw out only one signal, and
that is the price of Gold. Those who can only see an upward trajectory for the
precious metal have been relying on geopolitical tensions over Ukraine,
abnormal weather patterns in the US, perceived demand for physical gold in
China and India, and whatever you are having yourself in order to bolster their
position. But it keeps on falling.
Is the Euro due for a hit today?
Towards the end of the London session yesterday
it looked like the big boys were taking a view that the European Central Bank
deliberations later today will be something of a negative for the Single
Currency.
It can be seen that while
back on March 20th price action was rebuffed by the 200 period SMA
(blue line) it has broken through it since then, and with some conviction in
the last hours of yesterday’s London
session.
The fundamentals for EURUSD
are also bearish. While the pair has been powering upward even in the teeth of
the realization that tapering in the USA is a done deal, there are indications
that the Euro zone monetary authorities are growing more and more concerned,
not just about the risk of deflation which now officially exists in some of the
peripheral member states, but also about the very high and chronic rate of unemployment
in Europe as a whole.
The traditional measure for
dealing with these issues is Quantitative Easing, or something that
approximates to it and that has the same effect. QE in Europe is not as easy as
in the USA or Britain because there is not one bond issuing authority like
there is in those jurisdictions - each member state issues its own and they all
have different characteristics. So any bond purchasing program would be complicated
in the extreme. The ECB, however, has proved itself to be very resourceful in
these matters in the past.
There seems to be something
of an expectation on the part of Forex market participants that it will prove
to be so on this occasion as well. Such a measure would be calculated to weaken
the Euro.
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