Good food for thought takeaway on USD:
safehaven.com
Excerpt:
And this thought brings us to today. The intermediate-term and long-term outlook on the dollar remains bearish, but short term a bounce is certainly possible. By a bounce I don't mean a massive multi-month bear market rally like the first half of 2004, but a sharp move higher over a couple of weeks or so. Two previous bounces are labeled above, in June and July, which each carried the dollar higher for a short spell.
Technical bounces are totally normal during major downlegs, they help bleed off temporarily excessive fear and rebalance sentiment. Today's soaring media coverage and the resulting growing notoriety of the dollar's weakness is both a result of growing fear and a catalyst for even more fear. Unless the dollar bounces briefly, fear could get out of hand. Bounces solve this sentiment problem.
These technical bounces generally occur when the dollar hits its tactical support line, just as it did in June and July before the previous two bounces. As you can see in this chart, the US Dollar Index just slammed into this same support line again for a third time in early November, and a minor bounce may already be in progress.
If this fairly-high-probability bounce indeed materializes in the coming weeks, it could carry the dollar back up as high as 86+, up to the same upper resistance line at which the currency lingered last summer. But, even if the bounce does run all the way back up through the dollar's tactical downtrend channel, odds are it will be short-lived. With strongly bearish intermediate and long-term outlooks, any dollar strength on a minor technical bounce will probably be fleeting at best.
The bottom line is the dollar bear's notoriety is growing, which naturally causes concern among contrarians. A contrarian wants to buy when others are afraid and sell when others are brave, so contrarians short the dollar today are wary that the mainstream is growing too fearful of the falling dollar. But, thankfully for contrarians, the technicals and fundamentals only seem to support a short-term dollar bounce at best, not a major bear-market rally and certainly not the end of the dollar's secular bear.
(*) COT unfortunately appears to be delayed until Monday because of Veteran's Day. I'm especially interested in seeing if spec/funds have been largely flushed out of the energy complex. |
