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The Dollar Makes A Higher High And Struggles

Summary

  • A bear market since the highest level since 2002.
  • Every rally led to a new low.
  • The bullish key reversal broke the pattern on a short-term basis.
  • Year one of the bear market, six more to go.
  • Three reasons for a lower dollar in the months ahead and an ETF that will rally in the face of a falling greenback.

In 2014, the U.S. Federal Reserve told markets that it would taper their program of quantitative easing which was a response to the 2008 financial crisis. QE was a program the Fed designed to stimulate the economy by encouraging spending and borrowing while inhibiting saving. At the same time, the central bank slashed interest rates to the lowest level in history sending the short-term Fed Funds rate to zero percent. Other countries around the world followed the Fed, and a tidal wave of liquidity flooded markets with capital to avoid a global recession, or worse.

The first move by the Fed in 2014 to taper the QE program led to an end to asset purchases and the first short-term rate hike in December 2015. However, the announcement of the intentions by the central bank caused the dollar to take off to the upside versus other world currencies. The dollar index rallied from lows at 78.93 in March 2014 reaching the 100.36 level in March 2015. The rally of over 27% in just ten months led to a period of consolidation where the U.S. currency eventually traded to a high of 103.815 in January 2017.

A bear market since the highest level since 2002

The first days of 2017 marked the top for the U.S. currency as it traded at the highest level in fifteen years.

Source: CQG

As the quarterly chart of the U.S. dollar index highlights, the index turned south at 103.815 and declined for five consecutive quarters reaching a low of 88.15 on January 25. When the greenback fell below the May 2016 low at 91.88, the last level of support, the bearish trend took hold of the dollar. Any attempt at a recovery has failed as selling has pushed it to lower lows over the past fourteen months.

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This article was written by

Andrew Hecht profile picture
28.74K Followers

Andrew Hecht is a 35-year Wall Street veteran covering commodities and precious metals.

He runs the investing group The Hecht Commodity Report, one of the most comprehensive commodities services available. It covers the market movements of 20 different commodities and provides bullish, bearish and neutral calls; directional trading recommendations, and actionable ideas for traders. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

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Comments (3)

mmkkgg profile picture
G O L D !
pgace123 profile picture
Petroyuan could also affect the dollar. Coming at the end of the month I believe.
buddyrow4 profile picture
đź‘Ť
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