Is the U.S. Dollar Euro On the Turn?

By: Seven_Days_Ahead

The Technical Trader’s view:

WEEKLY CHART The drama of the Dollar lies in the completion of a massive Double Bottom when the market drove up through the 1.4716 level in mid October this year. Since them of course, the market has hovered above that level, but not departed from it. The implications of the massive Double Bottom are grave for the Dollar both medium and long-term The minimum move is up to 1.70. Through the previous all-time-low of 1.6036. Now study the pause above 1.4716 to reveal the short-term situation.

The Macro Trader’s view:
The Dollar has been under pressure, principally against the Euro since March of this year, when the worst of the financial crisis was thought to be over and equity markets began to rally. This robbed the Dollar of its safe-haven status and as risk aversion began to ease a little, the Dollar’s weaknesses were exposed.

Traders saw the US running up huge budget deficits, adding unimaginable amounts to the national debt and since a US$1.8T budget deficit wasn’t just an emergency measure to help stabilize the economy, but part of Obama’s economic policy to “remake” the US economy, traders judged the Dollar a sell.

During the Dollar’s decline China has voiced dissatisfaction with the Dollar’s role as world reserve currency and both she and India have bought Gold in a move to gradually diversify away from US Dollars.

Even while Obama has been visiting China, the complaints from the Chinese side haven’t lessened as they accused the Fed of running policy in a way that is fuelling the next big asset market bubble as the Chinese complain the Fed is allowing cheap Dollars to finance riskier asset purchases.

While this is arguably true, the Chinese are no saints and are artificially depressing the value of their own currency.

In recent days Fed Chairman Bernanke saw the need to speak out in the Dollar’s defence, something Fed chairmen never normally do since, traditionally, the Fed talks about monetary policy and the US Treasury Secretary talks about the Dollar.

As a result the Dollar gained brief relief before again testing the lows.  So today Obama seems finally to have woken up to the dangers of running too big a deficit and allowing the national debt to seemingly spiral out of control. He said the deficit needs reducing or else the US runs the risk of a double dip recession.

Fine words, but his policy faces the other way.

Currently the Dollar is enjoying one of its numerous corrections, but nothing has changed and the Dollar remains a sell against the Euro and other major currencies. That even includes the Pound - despite the UK’s own budget deficit and debt problems.

Mark Sturdy
Philip Allwright

Seven Days Ahead
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Mark Sturdy, John Lewis & Philip Allwright, write exclusively for Seven Days Ahead a regulated financial advisor selling professional-level technical and macro analysis and high-performing trade recommendations with detailed risk control for banks, hedge funds, and expert private investors around the world. Check out our subscriptions.

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