US Dollar Not As Healthy As Recent Trading Suggests

Despite the strong move in the US dollar over the past while, the greenback remains in a long term downtrend. It is peculiar why so many traders focus on the short term. Why ignore what has been happening in the US dollar over the past few cycles? As the chart illustrates below, the recent damage was done to the greenback in 2017 when the dollar index lost more the 15 points. This caused the long term moving averages to cross over which usually means the long term direction of the greenback has changed.

US Dollar Moving Averages

US Dollar Moving Averages Crossover

Trump Has Helped The Dollar

Now Donald Trump has being doing everything he can to change the paradigm here. From trade tariffs, to tax cuts and lower repatriation capital costs, all of these have helped in bolstering the strength of the US dollar.¬† There are many things out of his control however and one of them is inflation. Trump in fact recently made his opinion known about the Fed’s latest interest rate increase. He wants lower interest rates which would result in more money spent. The less the US government has to pay on interest on its debt, the more it can spend on defense, infrastructure, etc. Spending ( as we are seeing on main street) can bolster an economy and its currency in the short term. Therefore, more short term signals such as the 24 monthly average is now showing a bullish signal as we see below.

US Dollar Monthly Average

US Dollar Monthly Average Has Turned Bullish

Technically The Dollar Remains In A Downtrend

Now if we turn to a more near term chart, we can see that for the US Dollar to resume its bull market in earnest, it would need to take out its December 2016 highs of almost 104. On the contrary, if all we are getting here is a bear market rally in the greenback, expect the sub-89 lows that the US dollar printed at the start of this year to get penetrated. This is why the next month or so is critical not only to the greenback but also for commodities and particularly precious metal positions. Why? The late 2016 top and the bottom the US dollar printed earlier this year seem very much like multi-year pivot points. The question is whether the US dollar can make new highs or will be make new lows. The answer to this question has huge ramifications for precious metals positions.

US Dollar Rallying Hard Out Of Hard Lows

We may get some further strength in the greenback simply from a momentum standpoint. It is though due a drop into a daily cycle low any day now due to its technicals being overbought. It will be interesting to see how it holds up during that downturn.

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