U.S. Dollar Index (DXY)

More Dollar Weakness Likely In Coming Months

Posted in U.S. Dollar Index (DXY) on October 31st, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

When looking at the long-term chart of the U.S Dollar Index (DXY), it appears likely that more dollar weakness is likely to unfold in coming months. Monthly stochastic studies, RSI (Relative Strength Index) and MACD (Moving Average Convergence/ Divergence) indications are all declining bearishly and are not in oversold conditions. This technical set-up favors a slide in the greenback with a possible target of 74.40, which is where two separate trend lines converge.

If this scenario were to play out as outlined, the economic backdrop would likely be a continuation of sluggish growth and tepid employment gains over the near-term highlighted by a low interest rate policy by the Federal Reserve.  Nevertheless, a weaker dollar in time could also give a competitive edge to U.S. goods and services, and would likely be a plus for equity markets as well as commodity prices and basic materials production.

In due course, a weaker dollar could also result in an expansion of domestic growth, a stronger real estate market, an expansion in job gains and a likely lift for the emerging markets whose credit spreads would likely compress somewhat against U.S. interest rates.

This scenario could be altered, however, if domestic political squabbles were to take an even darker turn in coming months, or an unexpected geopolitical event were to develop and redirect vital resources for period of time. Those concerns are difficult to predict by definition, but could emerge nevertheless.



Can U.S. Dollar Index Break Above Key Resistance?

Posted in U.S. Dollar Index (DXY) on July 11th, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With additional reports suggesting that the economy is improving at a slow and measured pace, the U.S. Dollar Index (DXY) extended higher last week, posting a 3-year closing high of 84.449. Falling precious metals’ prices combined with rising yields on 10-year Treasury notes added to the dollar’s luster as investors “priced in” the prospect of the “taper” beginning sooner than expected. As a result, the U.S Dollar Index (DXY) is now approaching a test of key trend line resistance that currently sits at 85.85.

In the absence of overbought conditions on long-term charts, there is a possibility that the U.S. Dollar Index could break above the 85.85 level. Such a “breakout” would then focus attention of currency traders to the possibility of an eventual test of key trend line resistance that currently sits at 101.40, but rises over time. Adding to that possibility is the likelihood that a broad bullish reverse Head & Shoulders pattern that targets the 105 level (and began to form in 2002) may be underway.

A rise in the value of the dollar of that magnitude, however, would reinforce that possibility that disinflation, or even deflation could result as import prices decline relative to domestically produces goods and services. This clearly is not the scenario that most policy makers currently embrace, since it could retard employment and wage gains in future months and years.

For the time being, however, a steeper yield curve has buoyed the equity values of most banks, since profit margins are now increasing. Moreover, the willingness to expand lending volumes could help businesses ramp up capital spending plans as well as their hiring plans, which could offset the headwinds of a strengthening greenback.