Indeed, things are looking more depressed for the greenback? Now, what led me to say such pessimistic statement? Well, technically speaking, the US dollar index (USDX) which is a measure of the greenback’s valuation against a basket of other currencies like the arch nemesis, the euro, has just broken down from a massive cone head like head and shoulders pattern. As you know, a break down from such usually leads to a downside reversal which would send the USDX’s value to at least its previous low just above 74.00. Conditions at the moment are, however, already oversold. Given this, the index and the dollar itself could stage a “return move” or a rebound before heading down south again. The neckline of pattern should keep it from rising any further. If in case the index finds itself back above it then the dollar bulls would be saved from a massacre. Anything can still happen in the financial market especially during times of uncertainty. Miracles happen but seldom do they. Having said that, again from a technical perspective, the index and the dollar as it is have a higher chance of losing some more.
On the fundamental side, sustained rally in the global equities markets plus the US Fed’s recent intention to do another round of quantitative easing have brought the USD some wrath. Improved confidence among investors in the markets, of course, has led them to reinvest their funds into other higher yielding instruments like equities and currencies like the euro, Australian dollar, and the like, away from the low-yielding greenback. Well, it’s really understandable. If you’re a practical investor. Why would you place you’re money in the dollar that only yields roughly 0.00-0.25% a year when other markets, stock markets per se, are milking some honey day after day? Secondly, the Fed’s noted that it is ready to flood more dollar in the market to encourage more lending and stimulate business activity given the state’s below par performance. This naturally would weaken the dollar’s valuation. It’s actually simple supply and demand. So when the central does another round of QE, expect the dollar to fall some more. At the same time, if market confidence remains, other investments would be more attractive than the USD.
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