-- Published: Wednesday, 21 September 2016 | Print | Disqus
Announcements, announcements, announcements!
What a terrible way to die,
A terrible way to die,
A terrible way to be talked to death,
A terrible way to die.
Announcements, announcements, announcements,
On the doorstep of yet another much-heralded Fed announcement and in the wake of the BOJ's tinkering last night, the US dollar sits fittingly at a crossroads: spring back to its stoic uptrend nearly 19 months dormant – or fall back through intermediate support just a few percent below. As circumstance would have it, today is also the last official day of summer, to which we say – get on with it. Bring on the Fed, bring on fall and bring on the fall in the US dollar.
While there’s certainly no shortage of bubble soothsayers these days, one that’s arguably on the precipice of deflating and which has followed the structure of exuberance – is the US dollar. And although we’ve written extensively of why, historically speaking, we believe the dollar is as extended as it became and remains (see Here, Here, Here, Here), it largely has been motivated by the Fed, or more precisely – the markets expectations with future policy. Framing the dollar as a proxy of confidence in the golden age of central banks, where it discretely took flight as the Fed led policy makers in the wake of the financial crisis and soared to icarus heights on misplaced expectations with more contemporary tightening cycles – we'd argue the apparent indecisiveness in the dollar's technical structure today aptly represents the unresolved tensions in the market that we believe will ultimately become unwound, as challenging economic conditions largely limit the reach of the Fed going forward.
- Click to enlarge images -
Granted, we've found the circumstantial evidence – from both a quantitative and qualitative perspective, in favor of a weaker dollar for some time. The move was as extreme as the cycle high in 1985, as well as the dollar squeeze during the financial crisis. Both performance extremes served to cap the blow off move, as we expect a similar outcome today as the Fed's influence on the dollar continues to wane. From a bearish technical perspective, the next shoe to drop would be a weekly break below ~93 on the US dollar index, which would usher in the next phase (i.e. fear) of the retracement move lower, as expectations of a continuation of the dormant uptrend are largely abandoned.
As we've described in previous notes, the dollar's influence on various markets is significant, with the abstract result that precious metals and commodities should benefit disproportionately, as real yields continue to move lower as inflation firms – but the reach of the Fed is increasingly limited by the economy.
Overall, this market thesis remains on course, as our leading indicators in the silver:gold ratio and the Japanese yen appear to be taking the next step higher, which bodes bullish that the retracement decline in gold is over and the next leg down in the dollar approaches in Q4.
The content on this site is protected
by U.S. and international copyright laws and is the property of GoldSeek.com
and/or the providers of the content under license. By "content" we mean any
information, mode of expression, or other materials and services found on GoldSeek.com.
This includes editorials, news, our writings, graphics, and any and all other
features found on the site. Please contact
us for any further information.
Live GoldSeek Visitor Map | Disclaimer
The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy
or completeness of the information (including news, editorials, prices, statistics,
analyses and the like) provided through its service. Any copying, reproduction
and/or redistribution of any of the documents, data, content or materials contained
on or within this website, without the express written consent of GoldSeek.com,
is strictly prohibited. In no event shall GoldSeek.com or its affiliates be
liable to any person for any decision made or action taken in reliance upon
the information provided herein.