U.S. Dollar Index Resumes Its Upward Path
Posted in U.S. Dollar Index (DXY) on February 28th, 2013 by admin – Be the first to commentBy Jim Donnelly, Olson Global Markets
After months of better-than-expected housing data, along with slow but continued improvement in the employment numbers, the U.S. Dollar Index (DXY) held its ground in recent months then resumed its upward path in recent weeks. Overt intentions by the new Japanese government to stimulate its sluggish economy by devaluing Yen (by adopting an aggressive quantitative monetary policy including the purchases of both European and U.S. Sovereign debt issues) clearly sent Yen sharply lower during the past quarter versus both Euro and the greenback. Nevertheless, it might have been last week’s release of the Federal Reserve minutes from its last meeting which suggested a possible reduction in open-market bond purchases that triggered the dollar’s latest move higher.
From a technical point-of-view, the DXY is again in position to move toward an eventual test of key trend line resistance currently sitting at the 86.20 level. That being said, a move of that magnitude would likely carry with it a hint of disinflation of imported goods, but inflation on exported goods. That, in turn, could become a drag on U.S. exports at the margin. Such a condition would liken dampen expectations for improved earnings growth as well as diminish expectations for higher equity prices in general.
In any event, with the Italian elections concluding on Monday, and with the prospect for sequestration to be triggered on Friday, another boost in the dollar’s strength could result over the short-run.