The US dollar index, a measure of the
strength of the greenback against a basket of the world’s major currencies, has
reached an important historic trendline, going back to 2005. Its recent strong
upsurge, on the back of the knowledge that the Federal Reserve has determined
to end QE this month and is in the process of planning interest rate rises, has
been responsible for this.
However, it would be a mistake to think
that this can go on indefinitely, or at least without a break. The chart above
shows unmistakable signs of an exhaustion surge. This occurs when market participants
who have been on the sidelines suddenly wake up and start to think that they
might be missing something. The rush to buy, in this case the US dollar against their favourite counterpart currencies, and are facilitated by more involved
and experienced sellers who are happy to take their profits and patient enough
to wait for the inevitable pullback so that they can resume their positions at
a lower level. It happens in all markets and Forex is no exception. Be careful
out there.
Aussie
gets a reprieve on China data – for now
The HSBC Purchasing Managers Index
(PMI) for Chinese manufacturing came in at a level in excess of 50 last night
(GMT) [50.2 to be exact]. Any reading over 50 indicates expansion and this was
enough to give the much battered Aussie dollar a small boost overnight.
However, the outcome was less than
expected by the market and even as we write it is apparent that this fillip to
the Australian unit is likely to be short lived.
The additional factor has to be that,
no matter how well respected the HSBC is as an institution, economic data out
of China has proved in the past not to be the most reliable that we have. The dominant
trend in the Aussie is still strongly to the downside, and we will be
respecting that.
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