Logical arguments can be made why the dollar should rise or fall in the coming weeks or months, but these arguments are difficult to substantiate with data. The Federal Reserve kept its short-term interest rate unchanged (for the eighth consecutive time) at its most recent meeting in late June. Barring any unforeseen economic or market developments, the odds right now are that it will do the same at its August and September meetings.
As the dollar index hovers near key levels, one thing different from 2004 is the markets’ more subdued reaction to a significantly weaker dollar. And, as the dollar faked out the financial world by rallying when sentiment was extremely negative at the outset of 2005, one must wonder if the lower level of concern today is a sign of more downside potential for the buck.
There are certainly indicators galore signaling the dollar is dramatically “oversold,” but such indicators have been saying the same thing for months. Nonetheless, such an obvious support level is likely to inspire greater market volatility. There are many traders who have bought around this level expecting the dollar to rebound, and just as many ready to pile on if the buck drops through support.
This analysis was intentionally conducted a couple of weeks (July 18-20) before publication to give readers the ability to compare its implications to how the market has actually behaved since the research was concluded. The numbers here can serve as guideposts, so traders can see if the market is behaving as its past behavior suggests it should.
Subscribe to:
Post Comments (Atom)
Post a Comment