Outlook for the US Dollar
Sally Limantour
The dollar was at this level back in the 1978.. We have tested this area a number of times and there are two predominant perceptions right now.
The dollar will be supported down here. Going back to charts in the 1970’s there have been 4 times we have tested this level and bounced – 1978, 88, 92 and 05.
Here is the logic:
Foreigners currently own roughly half of our Treasuries and securities and are Buying over a trillion dollars worth every year. It is in their best interest to not let the dollar fall much further.
The other idea is that many other countries have interest rates that are higher than the US and their currencies are more attractive.. Britain, Germany, Australia and others are all higher and their ministers of finance are talking more about concerns over inflation and raising rates to control it. The US, however is still hinting at lowering rates in the future to offset a weak housing market.
So this is the dilemma and we have to watch this closely as it will have repercussions for many markets.
While I hold CD’s denominated in different currencies ( as a way to be short the dollar), I am eyeing a potential short term trade of going long the dollar. On Friday morning, looking at the Market Profile chart we had a high level of trade occur at 81850 and I went long. It took off and I aggressively moved my stop up and captured a good part of the move and am now flat.
(see Market Profile chart – look at 4/13 and see where the horizontal line is longest at 81850. It then gapped up and traded crazy before settling at 81950.) This technical set up together with the chatter getting loud on dollar bashing while talking up the Euro (German exporters calling for 1.4000 in the euro) made me get a bit contrary in the morning).
Options may be the way to play this as a way to get long with a good risk/reward strategy. I am still bearish the dollar in the big picture, but it may be overdone and the first perception mentioned may move the market higher.
The following charts are:
1. Long term chart of US Dollar
2. 30 minute chart of US Dollar
3. Market Profile of US Dollar
Talk of interest rate cuts will now be on the back burner as the Fed will remain on hold. Inflation is ticking up and having just returned from the Bahamas where I attended the Natural Resource Summit of the Americas, I am still convinced we are in a major bull market in commodities and this sector will outperform. It is both a supply and demand issue in many of the raw materials and we should see opportunities ahead in the base metals, precious metals, molybdenum (try saying that word three times fast) uranium, energy, alternative energy, water supplies and food. This is a theme I will continue to cover and focus on both in futures and the natural resource stocks.
As for the employment report, the headline reading was +180k versus expectations around -30% lower. In addition, the rate of unemployment dropped to 4.4% and revisions for the last two reports were sharply higher than anticipated. The true damage done was in the short end of the yield curve, where Eurodollars were hammered lower by -10 to -16 basis points in their shortened trade. The long end held up marginally better, but still finished with significant losses on the session. The dollar was able to rally against nearly all the major currencies.
