Here we are again: The U.S. dollar index looks ready to test its 200-day moving average (DMA). The near unrelenting selling of the dollar against all the major currencies has left the currency grasping for its believers.
A surprisingly strong jobs number on Friday, might, just maybe, provide a catalyst for some kind of relief bounce. However, in the past four and a half years, the dollar has breached this important technical barrier four times (labeled with colored numbers below). Each break has ushered in a fresh and sustained phase of buying or selling. The current downward momentum suggests that a break here will carry plenty of follow-through.
*All charts created using TeleChart:
The dollar has slid as confidence returns to the euro (I no longer hear anyone touting their prior knowledge of the euro’s certain downfall) and weak economic data throws doubt on the U.S. recovery. Unlike previous episodes of economic fears, the dollar has not been the beneficiary of a flight for safety…even as Treasury prices continue to climb. Clear relative strength in other currencies like the Australian dollar and the British pound seem to tell us that the U.S. will now be alone in its economic woes. The stock market’s month-long rally from 2010 lows provides an important cross-current as the same economic data helping to sink the dollar are no longer disturbing the few buyers lifting the stock market to higher heights.
I will be watching this coming test closely and positioning myself for the “winning” side of the dividing line.
Be careful out there!
Full disclosure: short EUR/USD, long AUD/USD, long GBP/USD, long FXA