wavepicker,
I assume this is from a TA perspective, but I can't see any fundamental reason for a bounce in the $US on the horizon. If you factor in that the US housing bust will continue into a recession (watch the home builders reports to come), or worse?, why would anybody want a US dollar.
A lot of countries are primed to transfer to the Euro at a moments notice, as their $US investments have tanked over the years.
The crux of the whole problem is excess liquidity. Until such a time as the excess is purged (recession?) there looks to be downward pressure on the US dollar. That is, if market forces were allowed a free hand, but as witnessed this week, the US Fed is putting up a fight to the end maybe. How much more money can they prime before they have to resort to the last resort - lowering interest rates?
Faberism - 'the US Dollar is doomed'.
Hello Uncle,
Fully understand the fundamental situation with regard to the US buckaroo. But quite often markets tend to do what is not logical, especially when it comes to fundamentals in the short to medium term. Over the longer term, the fundamental argument is certainly more compelling. For what short to medium term reason are commodities currently reversing?? Why is the Aussies market having such a savage correction? After all economy is good, very low unemployment, great company profits….. blah, blah, blah?? Simple, the short/medium terms fundamentals lag the market not lead it.
I like most other believes the USD is in a secular bear trend, but markets don’t in most cases don’t like traveling with the speed of an express elevator either up or down. They have countertrends, sometimes very deep ones and sometimes short ones. Just have a look at this market, it has been pummeled into the ground for the last 7 years, what are the chances it’s going to collapse from here given it has already come down 33%?? If anything further downside will be limited in the medium term. Over the longer term a continued decline is more realistic.
Assuming the stock market continues to tank it, what will happen to the dollar?? Well let’s have longer term look at it see what happened in 1987 for example (not that this is entirely a valid comparison but it’s the only instance I could find). After 87, the USD against a basket of currencies fell for a good year and then rallied hard. In some currencies this was a countertrend, in others like AUSUSD it was a full on bear. Why did the USD rally, after all the US was in the early stages of recession? Could it be that the USD will still be the currency of choice INITIALLY if the markets continue to tank it?
Then we have the interest rate cycle. This appears to have bottomed in late 2002; the move of the last 20 years appears to have been a nice abc correction. So interest rates could be double digits again within 5 years.
The pattern in the USD Index appears to be an Ending Diagonal or struggling trend down. The fact that it has struggled down NEAR a previous support level has to catch ones eye. These can resolve 2 possible ways
-Wave 5 of the ED can turn into a brief but sudden move down or a “throwover” of the lower of 2 converging trendlines in this current trend own. This is usually done on high volume and often signals exhaustion and a fast reversal
-Wave 5 could terminate above/close the lower trend line in which case we get an abrupt reversal.
Once again the USD Ending Diagonal appears incomplete, so there is still the need for more downside here, but limited. In terms of time this may take the rest of the year. I have looked at the AUDUSD and I think it will consolidate and hold on before topping next year some time-possibly in the middle to second half of the year.
Cheers