Teflon Dollar, Key Reversal?

Okay I am no technician but the dlr index today and dlr major charts look like a key reversal is underway…let the experts make the final ruling on this, but just feels that way. What I do know is how remarkably well the dollar has held up despite the world of negative news thrown at it in the last month including back-to-back weak jobs reports, unprecedented Fed easing (Volcker cut more but from much higher levels), hawkish rhetoric from the ECB, minefield of negative news for banks from subprime, the weakest ever start for the year for the DJIA, alarming drop off in US retail sales, deteriorating outlook for US corporate earnings and profligate fiscal policy out of Washington in an environment where the budget deficit is once again widening. Okay I am no technician but the dlr index today and dlr major charts look like a key reversal is underway…let the experts make the final ruling on this, but just feels that way. What I do know is how remarkably well the dollar has held up despite the world of negative news thrown at it in the last month including back-to-back weak jobs reports, unprecedented Fed easing (Volcker cut more but from much higher levels), hawkish rhetoric from the ECB, minefield of negative news for banks from subprime, the weakest ever start for the year for the DJIA, alarming drop off in US retail sales, deteriorating outlook for US corporate earnings and profligate fiscal policy out of Washington in an environment where the budget deficit is once again widening. The Teflon dollar is here to stay and it is only a matter of time before the currency market punishes other currencies. For the euro this punishment will come in the form of betting the ECB got it very wrong by chasing inflation dragons. For commodity currencies, the US recession will slow global demand appreciably and drive commodity prices down and commodity-based currencies. Emerging market currencies, the love children of the last 5 years, will get spanked on lower commodity prices and a global slowdown in demand. It may take weeks to months to unfold as negative US news cuts both ways – not the catalyst for dollar buying. But the more the dollar deflects everything thrown at it, the more convinced I become that the currency is putting in a major bottom and in due course will recover from current oversold levels, and even if marginal new record lows seen like the case in dollar/Swiss this week and potentially euro/dollar in the immediate future. It may be early for buying spot dollar, but think longer-dated dollar calls should be Hoovered up.

David Gilmore

Foreign Exchange Analytics has it's roots in both the emerging information technologies and the global economy that characterized the last two decades.  As currency transaction volumes soared in the wake of the 1985 Plaza accord, the need for timely concise information on what forces were driving and would drive exchange rates became critical.   David Gilmore was one of a new breed of analyst that saw a void of relevant, market moving... More