The last two have resulted in the immediate dumping of the . These setups have resulted in the classic “buy the rumor, sell the fact” style trades. Markets are forward-looking and often price in news headlines weeks, if not months in advance. There’s an old adage,
“If you trade the news you lose.”
The dollar price in recent trading sessions has started to fold somewhat. So has the dollar topped, or is it close? With the Fed now less dovish (we still don’t class this as hawkish given nearly 9% inflation and 0.75% increments – how are 2% rates hawkish?) and further increases likely priced in, the dollar may have topped or been very close to it. There are two reasons for this.
The dollar has shown so much strength in the last year due to the crash. Euro makes up 57% of the basket of the dollar index. Since the Fed has increased rates and the ECB hasn’t, the euro has plummeted, helping give the dollar a bid. This is likely to change, reversing the EUR/USD to the upside, putting pressure on the dollar.
The second reason comes from the stock markets and the pressure they are under due to higher rates. The Fed must be careful, as they cannot continue raising rates indefinitely. The first time they pause will cause the dollar to fall, and the decline could extend if the Fed decides to save the markets by reverting to QE.
The case for commodities right now couldn’t be stronger. It has been extremely frustrating if you are a and bull. Every time it looked like a fundamental event that has historically led to a gold rush, the Fed has unleashed a statement to send yields and the dollar higher, making them more appealing.
The dollar has historically gone on massive runs higher, followed by massive runs lower over significant periods. In recent times it has been a boom and bust style play. This is usually reflected by The Fed’s manipulation of monetary policy, which can cause a change of direction in the medium term. This run the dollar has been on looks top-heavy on the charts. A weekly close below the 103.750 level would support a move to the downside.
Higher rates are designed to slow the economy down. This is dangerous when the economy is already heading towards two-quarters of negative growth. In conclusion, we suspect the dollar doesn’t have that much upside left, which will lead to a resumption of the commodity bull run.