The moment of truth for the u.s. dollar seeking alpha stock connect morgan


The U.S. dollar is the world’s reserve currency because of the political stability of the richest nation on earth. In May 2014, the dollar began to climb as the Federal Reserve tapered the quantitative easing program that followed the financial crisis of 2008. The central bank signaled that short-term interest rates would rise from the zero level and the dollar index moved from 78.93 to highs of just over the 100 level in ten months usd law school. The dollar index then spent the next twenty months consolidating between 92 and 100 and following Donald Trump’s election as President last November it rose to the highest level since late 2002 when the index hit 103.815 during the first days of January 2017.

As the world’s reserve currency, the dollar is the benchmark pricing mechanism for most raw materials. A strong dollar tends to cause commodities to move to the downside and a weak greenback typically causes strength in the raw materials sector.

Since the January highs, the dollar has been correcting to the downside, and over the course of the past almost nine months, it has fallen by 11.3%. Now the dollar is approaching the moment of truth when it comes to the technical position of the currency, and a move through critical support could have serious ramifications for the prices of commodities as well as other markets across all asset classes.

When the dollar traded to the highest level since 2002 in January, it broke through all areas of technical resistance and it looked like the dollar could head for much higher levels on the dollar index. Not only did the dollar break above resistance at 100.60, but the technical target became the 2001 highs stood at 121.29 ft future of marketing summit 2016. In currency markets, it is often interest rate differentials that cause changes in exchange rates. While the Fed had been tightening credit since December 2015, interest rates in Europe and Japan were at negative 40 basis points, and the ECB continues to use quantitative easing to stimulate the European economy. However, the dollar index backed off from the January highs, and the correction grew deeper as the months passed. Source: CQG

As the monthly chart highlights, the dollar index has declined for the past six months and is now approaching critical technical support at the May 2016 lows at 91.88 on the index funny quotes about friendship. Source: CQG

On the quarterly chart, momentum shifted to the downside during the first quarter of this year as the dollar could not manage to rise above the 103.815 level. The dollar has been on a one-way street lower since January.

After seven straight months of lower highs and lower lows, the dollar index was in desperate need of a recovery rally gender identity disorder. The index fell to deeply oversold territory, and a recovery rally followed the August 2 low at 92.39. However, the dollar index was only able to manage an upside correction to highs of 94.055 on August 16. The rebound turned out to be a dead cat bounce in the dollar, and since the mid-August high, it has been falling once again. On Monday, August 28, the dollar index declined to a lower low at 92.115 and settled at 91.14 not far above the lows of the session. With technical support at 91.88, just 0.235 below Monday’s, a challenge of critical support is likely coming in the days ahead. The short-term trend is once again lower for the dollar, and it could be the euro currency that breaks the back of the greenback and sends it below the technical support level that would end of the bull market that began back in May 2014.

As the monthly chart highlights, the euro currency has rallied by 15.7% since last December and traded to its most recent high at $1.1970 on August 28. It is just a matter of time until the euro passes the $1.20 level and it is likely that will coincide with a challenge of the 91.88 support in the dollar index.

The recovery of the euro looks a lot like the rally in the dollar that commenced back in May 2014 yahoo news canada. At that time, the Fed signaled that QE was coming to an end and the central bank was preparing to taper the program and hike interest rates which led to the rally in the dollar exchange rate pound to us dollar. Over recent months, we have heard more hawkish language from ECB President Mario Draghi, and it may be just a matter of time before the European Central Bank unveils plans for tapering of Europe’s QE program. While the Fed is now preparing for balance sheet normalization which will result in the legacy of QE rolling off the U.S. central bank’s balance sheet, Europe is now in a position where the Fed was back in May 2014. The end of European accommodation seems to be following the same path we witnessed in the U.S., and that could mean more gains in the euro are on the horizon. The dollar rallied by over 27% from May 2014 through March 2015 and a similar move in the euro would take to currency to over the $1.30 level.

Moreover, the euro rallied after the French election in May and the victory of Emmanuel Macron, the pro-EU candidate. In September, Germans will go to the polls, and it is likely that Chancellor Angela Merkel will win a fourth term. Merkel’s victory next month would cement the future of the European Union and the euro currency which could lead to gains in the euro against the dollar. Strength in the euro and weakness in the dollar comes as the U.S. administration has made no secret of its desire to see the greenback move lower to improve the balance of trade and make U.S. goods more competitive on global markets.

Meanwhile, the inverse correlation between the dollar and commodities prices has caused many raw materials to move higher over recent weeks commodity definitions. The price of copper broke out to the upside and was trading at the highest price since 2014 at over $3.06 per pound on August 28. Iron ore has rallied from lows of $52.31 on June 13 to over $75 per ton on Monday 1 usd to bgn. The Baltic Dry Index has moved over 45% highs since July 10. The prices of metals and minerals have moved to the upside as the dollar prepared to challenge critical support at the 91.88 level on the dollar index. If the dollar were to move below support, it is likely that we will see more buying in the commodities sector. On August 28, the price of gold moved to the highest level of 2017 when the yellow metal traded at highs of $1317.80 per ounce on the active month December COMEX futures contract convert nzd to usd. Late on Monday, a report that a North Korean missile could be heading towards Northern Japan is likely to add extreme volatility to markets, including gold and the dollar over coming sessions.

If the dollar were to break below the 91.88 support, the next level of support would likely be the psychological 90 level on the index. Below 90, there is likely to be price congestion between 88 and 90. A continuation of selling in the dollar is likely to cause markets across all asset classes to perk up their ears. The dollar has yet to fall below the May 2016 low which is the bottom end of its trading range, but a decline below the support level will end the bull market in the greenback and could increase volatility dramatically in all markets. The dollar took a break from its downside slide over recent weeks as the index bounced to 94 cad usd graph. However, it failed at that level and is now poised to test critical support, and below there we could see some wild and volatile trading conditions in markets across all asset classes. The moment of truth for the dollar and markets has arrived.

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