Since the middle of last year the US
dollar has been on a tear against all its major counterparts. The chart above
shows the US dollar index, which is its value against a basket of the other
major global currencies. Technical Analysis (TA) of the Moving Average
Convergence Divergence (MACD) indicator (lower graph) indicates that the
Greenback is seriously overbought, to use the TA parlance.
Recent movement of the US unit has
been such that there are indications of exhaustion buying. This occurs when
market participants who are late to the party, who feel that they might have
missed a boat of some sort, pile into the instrument in question in an
indiscriminate manner. This is almost always followed by a collapse.
Looking
for a catalyst
A trigger of some sort will be needed
for such a reversal, were it to occur. The most likely candidate for this is an
indication by the Federal Reserve that core interest rate rises are further
into the future than has been the case. Recent cuts in interest rates and other
easing measures by others, of whom Australia is only the most recent, and a
fear that the rampant US dollar would be bad for the US economy, would bear on
the Fed’s thinking in this matter.
There are other signs that something
of a turn in the US dollar might be in the offing. All commodities, and most
importantly oil, are priced in US dollars. In the last day of so there has been
a firming in the price of oil and such hard commodities as copper. Commodity
prices and US dollar rates are inversely correlated. When one goes down, the
other tends to go up.
No comments:
Post a Comment