Tuesday, November 5, 2013

Is The US Dollar Rally for Real?

I'm traveling today, and my internet connection is crap-tastic, so I'll keep this brief. All eyes should be on the US dollar now.

Updated chart

You can see that the US dollar has pushed above a downtrend that has been in place since July.  This is awfully bullish for the greenback, or it will be if the US dollar isn't faking us out.  You'll se that a similar push above the 50-day moving average in September didn't work out so well.

This is happening despite a call from Goldman Sachs this morning that the Fed will keep its QE program in place a lot longer than many people believe. QE should weigh on the dollar, simply because more money is flushed into the system.

So why is the US Dollar Index rallying? The euro is the biggest component of that index, and the euro is in terrible shape.  Estimates of euro-zone growth are being lowered. Estimates of high euro-zone unemployment are being extended.  The euro weakness is translating into dollar strength.

I can give you plenty of reasons why I think the dollar shouldn't rally, but the market doesn't care what I think. Keep your eye on this one. If the dollar ends this week strongly, we may be looking at a sustained dollar rally.

But if the dollar noses over and swan-dives back down, you know what to do.

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