The recent descent in the U.S. dollar continues nearly unabated. Even as I pointed out the importance of the 200-day moving average (DMA) for the U.S. dollar, deep, deep down inside I felt the U.S. dollar would finally put up a fight at this key support level. The trends that have brought us to this point have been far too consistent and seemingly due for some kind of substantial reversal. Moreover, the British pound seems extremely over-extended against the U.S. dollar, and the yen is trading at historic strength against the dollar. Yet, on Friday, the U.S. dollar broke down anyway (click for larger view).
Once this move shows some follow-through, it will be time to abandon all bets on reversals and/or relief rallies and get back with the momentum of an ever-weaker dollar (I remain bullish as ever on the Australian dollar, and I am STILL waiting for a fresh entry point for the gold ETF, GLD). The Federal Reserve policy announcement on Tuesday should push the “final” conclusion.
In the meantime, it seems to me a bit odd that Treasury bills continue to rally (in price) while the dollar gets weaker. The dollar is not serving as a similar “safe haven.” Either this is a growing bet that the U.S. will be relatively alone amongst developed economies in slowing down in the coming months and/or a “normalization” against the euro as fears of sovereign defaults disappear nearly as fast as they flared (meaning this is a great time to put those bets back in play).
Be careful out there!
Full disclosure: long USD/JPY, long TBT, short EUR/USD, long FXA