The much-maligned, beleaguered dollar -- driven lower for nearly a decade by series of unconscionable mistakes by United States' policy makers, may be poised to make a comeback.
But don't try to put those words into the mouth of currency trader Andrew Resnick. No sir. Dollar what? Resnick remains the skeptic of skeptics. There have been too many false break-outs and weak rallies that proved to be mere corrections in the euro's decade-long rise, in Resnick's view, to conclude at this juncture that the worst for the dollar -- and, by extension, for the United States -- is over.
A strong week for the greenback
That said, the week's data points are compelling. The dollar registered its biggest gain in two months against the euro, strengthening to $1.5006 -- or an improvement of almost 3.7% -- an enormous move in the currency market for one week. The dollar also strengthened about 2.1% versus the British pound to $1.9208, and about 2% versus Japan's yen to 110.08 yen.
What has caused the sudden turn of events in the currency market? (We don't want to use more-positive adjectives just yet.) Not the health of the U.S. economy, according to Resnick.
"The dollar rose this week on the belief the global economic slowdown will depress oil consumption, and on slowing growth in Europe and in the United Kingdom, which could lead to interest rate cuts by the ECB and Bank of England," Resnick said. "If interest rate cuts are ahead in Europe, that reduces the attractiveness of the euro, and cause investors to reduce positions in the euro, which is what we saw happen this week."
Further, if traders and institutional investors perceive that Europe is headed toward a recession, and may in fact be "later in the economic cycle" -- i.e. just entering a slow-growth phase as the United States starts to pull out of its economic doldrums, "that will increase the attractiveness of dollar-denominated investments, and the dollar will continue to rise," Resnick said.
But is Resnick a dollar-bull, or in the dollar camp? No, he said, citing a need for additional technical and fundamental confirmation.
"There have been too many dollar head fakes in this market. Technically we need to see the euro stay below $1.50 for three straight days, and fundamentally we need to see some positive data points for the U.S. economy, including an improvement in GDP growth and the trade deficit," Resnick said. "If and when that occurs, then I'll be bullish on the dollar."
Currency analysis: In deference to trader Resnick, one week does not a trend make. Hence, the view from here argues that the dollar has risen, but more data points are needed before one can argue the dollar has bottomed.
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Reader Comments (Page 1 of 1)
8-09-2008 @ 10:52PM
Tony Everitt said...
And one of Japan`s largest banks, Mizuho, is also a skeptic. They are forecasting a return to a sub-100 yen by year end and for the first half of 2009 at least, as the dark reality of US`s economic situation sinks in. They even suggest we could see a sub-90 yen/USD for the first time in history on peaks. See "Phoenix from the Ashes?" on Tony`s Blog for more.
http://www.south-pacific.travel/blog