The US Dollar, as measured by the US Dollar Index or USDX, started the year off on the strong note and looked to have regained its status as "King Dollar" until the beginning of last month when it put in an outside reversal week lower on its weekly chart. Interestingly, it put in the same exact pattern a year ago in the same month. (By the way, for those are not technical analysis geeks like I unfortunately am - an outside reversal week pattern is one in which a market which has been trending higher makes a NEW HIGH for the week only to then CLOSE LOWER than the previous week's LOW. It is generally regarded as a fairly reliable BEARISH signal).
It is difficult to point to an exact reason for this change in sentiment towards the Dollar right now given the fact that the US economy is in better shape than Europe and Japan ( that is not saying much) and appears to have entered a season of rising interest rates accompanied thus far by a soaring stock market. For the first half of the year that was all that investors needed to see and into anything US Dollar related they ran. Something has changed that - or at least it so seems.
It might well be that the US fiscal house disorder is coming back to the forefront of investors'/traders' minds once again as the federal government is up against its borrowing limit and once again the usual circus in Washington on the Potomac is back in town. Whatever the cause, the Dollar has now moved lower in 4 out of the last 6 weeks and in the two weeks that it did manage to close higher, the high of that week did not exceed the previous week's high price. That is not exactly a show of confidence as it is certainly not bullish.
While it is still higher on the year (barely) the chart is picking up some signs of waning upside momentum. The high price made this year in July exceeded the high of the previous July 2012 and that outside reversal pattern but the indicator did not score a fresh high; instead it registered a lower high resulting in a BEARISH DIVERGENCE. This in and of itself is NOT A SURE Sell signal unless it is confirmed by subsequent price action, which of course the market did. Even at that, the Dollar has not broken down technically on the price chart .
I would have to see a weekly close BELOW the band of "MAJOR" support noted on the chart to turn bearish the Dollar. Right now I am ambivalent towards it, being neither bullish or bearish except for the shortest of term trades.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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Saturday, August 17, 2013
Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.