The US dollar rules – OK!

Dollar Index - Monthly Chart
Dollar Index – Monthly Chart

Difficult to believe that until recently the US dollar was being written off by all and sundry, with some even suggesting that its days as the currency of first reserve were numbered. Many were calling for the Yuan to replace it, and even the euro in its current iteration. Others suggested a basket of currencies. How times have changed.

So what has changed? Well much as for the USD/JPY which I referred to in a post last week as being a game of two halves as far as the year was concerned, the same thoughts could equally be applied to the US dollar index, and perhaps the most descriptive chart is the monthly timeframe.

For the first half of 2014, the index remained waterlogged with the price action contained in a narrow range, building a platform of support in the 79 region and an area of resistance in the 81.50 area, and with many analysts having forecast 2014 as the ‘year of the USD’ it seemed that their forecasts were incorrect. Then in July, the sleeping giant finally awoke from its slumbers, and since then has powered higher with December now looking to add a sixth straight month of gains for the dollar, with Friday’s Non Farm Payroll helping to propel the index through the 89 level to currently trade at 89.51 at the time of writing, a level not seen since 2009. Indeed if the 89.71 high of 2009 is duly taken out this week, then we can expect to see the index rise higher still and move to test the 92.53 high of 2005, a level that would have been unthinkable in the summer.

The strongly bullish technical picture is also supported by the fundamental, with recent encouraging statements from the FOMC concerning the US economy providing the platform of the recovery, with interest rate differentials now once again rising in importance. With Europe struggling and even mighty China suggesting a possible slowdown, the US dollar could continue its progress higher still in 2015, and perhaps even move towards 100 in the longer term. To borrow from a popular street art slogan, for the time being ‘the US dollar rules OK’!

By Anna Coulling

About Anna 1054 Articles
Hi – my name is Anna Coulling and I am a full time currency, commodities and equities trader. I have been involved in both trading and investing for over fifteen years and have traded many different financial instruments, from options and futures to stocks and commodities. I write and publish articles ( mostly for free ) for UK and international publications on a wide variety of financial issues, and in particular I enjoy helping others learn how to invest and trade.

5 Comments on The US dollar rules – OK!

  1. Anna,
    You are living in a dream world, most of the usa states are bankrupted, the fed act if they have no debt, the payroll is manipulated to hell, the only true value is gold and silver?
    Listern to the likes of Ron Paul and Mike Maloney and Max Kieser, then you will get the truth.
    One of the banks are going to collapse with there derivatives contracts, I would say it going to be a German bank, and then you see how good the us will be.

    • Terry you are the one living in a dream world. Anna is reporting the current state of the market, not what her (or your) political views are. Maybe the world is coming to an end like you believe… but it’s not happening now. The right trade to be in now is long the U.S. Dollar until the market says otherwise. Perhaps you’d be more at home commenting on a survivalist or gold bug blog instead of here.

      BTW, why don’t you put your money where your mouth is and short the U.S. Dollar? I’d be happy to take your trade and add to my long position that is currently up 48% on the year.

    • Terry… You’re way off. The gold standard is long dead and it’s not coming back. There’s a reason for that, it doesn’t work. Here in ‘Merica (and all other closed loop economies), public sector (government) debt is equal to private sector wealth, to the exact penny. It’s impossible for the Fed to run out of money, since they create, or ‘issue’ new money. Sort of how the system works. I believe economists call it “operational reality”, of which most people are completely clueless of.

  2. Actually, Anna is basically correct. The Dollar has bullish cycles through to mid 2016 at least and potentially through to August 2017. Currently you’ll find the Dollar will correct lower for a while but not too long and will pick up again early next year. Once that follow-through has been seen, there will be a few months of weakness in a correction.

    I had many traders tell me in mid 2010, when I said the DOW would reach above 16,000-17,000 at least, that I was crazy and that wasn’t it obvious that the U.S. economy was going to crash. Well, here we are close to 18K but frankly I don’t think it’ll get too much higher now.

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