As I mentioned in Monday’s Morning Commentary (“Holy Buckets!”), the US dollar index was hammered again as we started a new year. The greenback fell as much as 0.51, hitting a low of 89.42, its lowest mark since April 2018’s low of 89.22 with the previous major (long-term) low of 88.25 (February 2018). As with so many markets these days, Newsom’s Rule #6 (Fundamentals win in the end) seems to be the dominant feature.
I hear the question, “What are the fundamentals of the US dollar, other than low interest rates?”
A friend, whose runs a business where trading global currencies is a key part of what he does, offered this analysis: The interest rate outlook of the US dollar hasn’t changed, with the downtrend in US Treasuries (prices) and uptrend in treasury yields indicating global traders are expecting higher interest rates long-term. The problem with the US dollar is the uncertainty of the situation in the United States in general, the rest of the world losing faith in the US’ ability to be a leader.
That’s what makes this coming week so interesting, given all that happened over the weekend and is expected to take place this week. Regarding the Senate runoff election in Georgia Tuesday, where the fate of the Senate majority hangs in the balance, I’ve heard arguments for the dollar growing ore bullish on both a Republican or Democrat victory. Will the greenback stabilize if Vice President Pence does his job of certifying the Electoral College results Wednesday? I don’t know. Maybe the US dollar will continue to drill down until the scheduled inauguration of President Elect Biden on January 20. If that even happens.
Monthly stochastics are indicating the US dollar index is sharply oversold, sitting near 0% as we start 2021. However, like the US itself, the dollar doesn’t appear to have found the bottom of the barrel, at least not yet.