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Dollar Has Legs Or At Least One

Marc Chandler profile picture
Marc Chandler


  • DXY is up 8 of the past 11 weeks, while the euro is mired in a well-worn trading range.
  • The yen and sterling are moving in opposite directions.
  • S&P 500 is poised to move higher, but has yet to do so convincingly.

Even though the conflict in Syria can rapidly escalate, investors were feeling more comfortable with risk over the last few days. The US trade rhetoric was toned down several decibels, and this helped. US President Trump saw signs of concessions from China President Xi's speech. Trump suggested that negotiations were underway and that an outcome in which there are no new tariffs implemented is still possible. NAFTA negotiations were also promising.

Equities rallied and the currencies that often do well when short-term participants have a greater appetite for risk, like the dollar bloc, did well, and the currencies used for funding, like the yen and Swiss franc, did relatively worse. Sterling's rise is also notable. It will carry a six-day advancing streak against the dollar into next week, and rose to new highs since last May against the euro.

The Dollar Index has been in a range of 89.00 to 91.00 for two months. It is a little below the midpoint. The protracted sideways movement neuters the technical indicators. There does seem to be an underlying bid that was not there at the start of the year. Over the past 11 weeks, the Dollar Index has fallen in only three, including last week's 0.35% decline. That net-net it has not gone anywhere is a worrisome sign. It does not appear to be a function of the bulls buying from the bears and accumulating a long position. It seems to be more the case that some shorts were reduced, but that the bears remain content and the bulls are not prepared to make a strong stand.

The euro, which is the single biggest component of the Dollar Index, also remains in a range. The bottom is near $1.22 and the top near $1.24. There were a few violations last month but attempts to play

This article was written by

Marc Chandler profile picture
Marc Chandler has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009 Chandler was named a Business Visionary by Forbes. Marc's commentary can be found at his blog (www.marctomarket.com) and twitter www.twitter.com/marcmakingsense

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. I have no business relationship with any company whose stock is mentioned in this article.

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Comments (8)

Correction :
S&P = 2000, around Sept 2018.
JP, I expect a sharp move up for the USD.
I expect a sharp decline for the S&P.
The first S&P selloff will be fast. It will be the first leg down, induced by the higher 25% of income. It might reach below S&P = 2,000, in mid 2019.
From there, a leg up, in a correction to a lower high for stocks, that will last for a while.
Those who had realized gains, from the selling stocks, will spend money on consumption.
Future higher consumer prices, because tomorrow a trade war, will be starting. Since everything is up, -
it will justify the flooding the stores.
The economy will boom and commodities prices will rise, it will be a mad rush.
The lower 50% will clear the malls, click on line, financing this mess with even
higher debt. A new frenzy of super rush re - orders to suppliers, will make them sweat !
In this period, of future inflation expectation, China SSEC, after the initial decline, will boom, for a while, in a dead cat bounce.
The world economy will be saved, until the next leg down.
Blame the USD.
me1999 - thanks for the reply. I certainly agree with portions of this scenario. S&P at or below 2K by sometime in 2019 (although I think there's another leg up prior to that), a relatively strong economy, and rising commodity prices. But I still struggle with the dollar strengthening to that degree. Seems like too many potential threats to see that happen. But, it's definitely not my area of expertise, which is why I asked. Thanks.
I agree. Everyone is holding firm thinking the market has another good 1 -1 1.5 years left in this run, and then they’ll sell in time before the correction. They’re wrong. They will be stuck as the market tumbles this year. Soon
USD LT since 1970, is in a trading range.
In 1985 it had a bubble, approaching 164.72.
Every bubble have a correction, just like from 1929 to 1932 and back to the trading range.
USD correction, at the low was 71.329.
After reaching the nadir point, It was in a trading range, for a while, until it jumped above that range in 2014.
While the USD was pumping muscles at the bottom, gold moved up to the roof.
In 2017 & 2018 the USD is in the middle of the trading range.
The USD will definitely test the resistance line, around 120 to 122.
When the USD was descending from the 1999, 2000 & 2001 tops, at the resistance
line level, to it's nadir of 71.329 in 2008, during that period, oil jumped to the roof !!
Badly wounded, the USD could not show any resistance to the gold + oil climb.
Lately it can, little more.
Moving higher ==> it will fight back, it will be a take down.
me1999 - "The USD will definitely test the resistance line, around 120 to 122."

Are you suggesting the dollar index will return to that resistance line from the current range of 89-91? If yes, when would you expect to see a move like that?
Bloomberg commodities is a wonderful new show.
The screen is large & wide, but u cannot identify symbols, - parameters names, - on the chart. They are just too small, therefor disappearing.
If Bloomberg add another narrow monitor, showing symbols & their color, the show
will get better.
BRENT-WTIC gap is widening. WTIC & WCS gravity force is having it's negative effect on WTIC.
A much cheaper Canadian oil is entering the US market, slowing down WTIC rise,
relatively to BRENT.
BRENT chart is showing that after a pulse or two, price will start falling.
If u draw 3 Y BRENT, week, log and connect the following dots, u get a resistance line :
tops of : 6/6/16 @ 52.86 --> 12/12/16 @ 57.89 and to --> 1/22/18 @ 71.28.
BRENT might rise to the resistance line, because of tension in the middle east.
Thereafter, price will decline to the support line, or BELOW !!
For drawing support take the lows of : 8/1/16 @ 41.51 --> 11/14/16 @ 43.57.
The north America market is much more stable than oil from the middle east.
BRENT-WTIC week, was negative (-) 5.15 on 1/19/16.
It was (-) 5.78 on 11/28/16.
Recently it was + 9.26 on 2/5/18.
The USD in a trading range for 3 month. That might change.
USDCAD will rise, approaching the support line of the following lows : 5/2/16 @ 1.25
to 1/30/17 @ 1.30, on the way to 1.38.
It sits on the support of 2011(L) and the 2014(L).
It might move lower, to a new higher low, before start rising.
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