The US Dollar Index Chart: Ready To Top
The outlook for the US dollar Index (and by default the US dollar)remains quite bright; its present trajectory indicates that it is set to pummel all the other major currencies. If the EU decides to engage the Trump administration with a trade war, the Euro will almost certainly trade on par with the dollar.
On a separate note, the Fed has a huge amount of leeway once we enter the next stage of the currency wars. By hiking rates early on the cycle, the Fed can easily lower them if the need arises, and any nation that decides to match them will experience a rapid decline in the value of their currency. A rapid decline in the value of a nation’s currency will unleash the inflation beast, and that is something nations like China can’t afford right now. We are in the midst of a massive currency war.
For now, the US has a plethora of weapons to deploy against any nation that decides to engage it. We suspect that Europe will decide to work with the US as this will give both Europe and the US a chance to push China to the negotiating table. It will be a painful blow for the leaders, but the Chinese people will benefit from this move as it will trigger a movement in China that will resemble what took place in Taiwan years ago when it broke away from mainland China. However, that’s a story for another day.
US Dollar Index Chart In Bullish Mode
The US dollar index chart (above) is in a very bullish mode. Note that it’s trending well above the main uptrend line and it would have to break through a through two levels of solid support to have any chance of ending this bull market. The first strong layer of support comes into play in the 88.00 ranges, and then an even stronger layer of support comes into play in the 83.00 ranges. The dollar would have to close below both these levels on a monthly basis to indicate that lower prices were on the horizon.
US Dollar Outlook After Trade War With China
However, given the momentum and the current trade war atmosphere, the odds of the dollar trading below 92.00 on a monthly basis are quite low. Moreover, the US economy is strong; GDP came in at 4.1% for the quarter, and US Consumer sentiment is still very strong. Europe’ growth rate in comparison is still anaemic, and China is on it’s way to the dog house as it’s just a matter of time before other nations join forces with the US. Markets are forward-looking beasts, and the Chinese markets have already spoken; they are indicating China Cannot win the Trade war battle; their only choice is to surrender and then come to the negotiating table. The longer they fight, the harsher the terms will be.
The above chart is a monthly chart of the dollar index; here the US dollar index has plenty of room to move before it hits the overbought ranges. However, on the weekly charts, it is now trading in the overbought ranges, so its time for the dollar to consolidate. The dollar could trade as low as 92.00 with a possible overshoot to the 91.00 ranges. We would use strong pullbacks to establish new long positions in the US dollar index
What’s the Outlook for the Euro
Conversely, the Euro is trading in the extremely oversold ranges on the weekly charts, so it’s looking for any reason to trend higher. Risk takers can use strong pullbacks to open long positions with the intent of closing the within the next 3-6 weeks. This is not a long-term play. Once the consolidation in the US dollar index is over, it is expected to soar upwards, and the Euro is projected to continue its downward journey.
US dollar Index Is Now Overbought
The US dollar index is currently trading in the extremely overbought ranges on both the weekly and monthly charts and therefore the path of least resistance is a consolidation or sideways action with a slow drift downwards. Why the slow drift and not a massive pullback? The US still offers the highest interest rates in the developed world and is, therefore, one of the most attractive places for investors seeking safety to park their money. Secondly, as the US lowers rates, the rest of the developed world will be forced to lower rates and in most cases, these rates will turn negative, as none of these countries raised rates as much as the US did.
Hence the bottom line in 2019 is that the dollar will consolidate and dollar bulls should view any pullbacks through a bullish lens. The stronger the deviation, the better the opportunity
April 2020 Update on US dollar
Due to the coronavirus pandemic, the Dollar will continue to reign supreme for the foreseeable future. Hence traders should focus on the weekly charts and open positions whenever the technical indicators are trading in the oversold to extremely oversold ranges.
A bigger bang would come from opening up long positions in US equities, you gain from both sides; capital appreciation as the stock market trends higher and currency appreciation if you are residing in a country outside the U.S.
Other Articles of Interest
Stock Market Crash 2018 Revisited (July 12)
Uranium Bull Market 2018; The Crowd psychology Outlook Updated (July 2018)