Reporting on the dollar today is difficult, as it’s been yo-yoing all over the place. Just look at this chart versus the euro…
This action is the result of traders not knowing what’s coming next. On Tuesday and Wednesday, the U.S. dollar took a big stumble. Some investors think that down move was overdone.
Bloomberg’s Ye Xie and Matt Townsend report, “The U.S. currency was little changed after four days of losses, the longest stretch of declines since Aug. 21. The dollar dropped 0.2 percent to 91.86 yen, from 92.04, after reaching 91.44, the lowest level since Feb. 16. The euro traded at 133.87 yen, compared with 133.99.”
But now, say Xie and Townsend, “The dollar advanced from the lowest level against the euro in 2009 on bets its longest losing streak in three weeks will be difficult to sustain.”
Even though the dollar appears to have halted its steep decline for the moment, economists are concerned that the greenback is still fragile. And experts say this halt may be due to a slide in other currencies.
“European stocks turned south after a strong opening and many in the market feel the risk rally is starting to look stretched, giving the dollar hope of a rebound,” reports CNNMoney and Reuters.
The Wall Street Journal notes that the dollar is still weak after four days of falling, and now uncertainty is setting in “for the immediate term.”
That uncertainty comes with the strain of opposing key data… Commodities prices are climbing, which could signal higher demand or higher inflation… Jobless claims declined in July, but the U.S. trade deficit widened by 16.3%, according to MarketWatch. At the same time, exports climbed.
“Despite the worse-than-expected headline figure, the continued upward trend in exports, coupled with the bounce in July imports, puts a positive spin on U.S. economic prospects,” said Sal Guatieri, senior economist at BMO Capital Markets, in a note, as reported by MarketWatch.
So which data is a currency investor supposed to pay attention to?
Harinder Singh, editor of Currency Profits Trader, says:
You know, normally a falling dollar like we’ve seen lately, particularly on a break below some well-watched levels, will invite or encourage some official from the administration to come out and say: “We believe in and pursue a strong dollar policy.”
I have not heard that kind of conventional speech for about half a year…
Perhaps the best way to look at the U.S. dollar is through the cold lens of technical analysis.
Harinder suggests that the U.S. Dollar Index’s breakdown below 78 was resisted for a long time… mostly as markets rallied.
This extended fall in the U.S. dollar, particularly compared to the euro, might set up an interesting opportunity for a pullback in the euro.
“Maybe someone will come out before this week ends,” says Harinder, “after the U.S. dollar worsens further, and after he/she has finally and carefully massaged the ‘statement.’”
That might signal a shift in the winds.
To find out how Harinder is playing this move in his service Currency Profits Trader, subscribers can read his latest alert online. If you’re not yet a member of Currency Profits Trader, here’s how you can join…
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