From August 4 to August 8, the U.S. Dollar wiped the floor with its currency counterparts in a head-spinning performance that's being called the “watershed week” for the long-suffering buck. (Financial Times)
During this five-day period the greenback enjoyed its strongest weekly gain in more than three years, culminating in its biggest one-day jump against the euro since 2000.
Yet in all the hullabaloo, the mainstream media failed to notice one major detail: namely, there was absolutely no “fundamental” reason for the dollar’s climb. I mean, according to the cause-and-effect experts, the greenback rises on positive economic news, right? Yet -- during the course of the dollar’s climb, the data coming out of the U.S. was about as upbeat as a funeral procession.
Cases in point:
August 4: Moody’s Investors Service suggests a “negative feedback loop” will trigger new and profound losses for the U.S. housing market. // Commerce Department report shows a slowdown in both consumer spending and retail sales.
August 6: Officials warn that Freddie Mac’s “gaping” quarterly losses could “spark a political and financial crisis.” (NYT) // The Federal Reserve announces the “financial market remains under considerable stress.”
August 7: Labor Department report reveals the number of people signing up for jobless benefits soared to a six-year high. // The Congressional Budget Office expects the 2008 budget deficit to widen to an all-time record.
(U.S. Dollar Soars To Five-Month High: In the Monday, August 11 Short Term Update, our analysts present original price charts and objective analysis of the greenback that show how high the currency is set to fly. Learn More)
To rationalize the irrational, one Monday (August 11) news source offers this explanation for the dollar’s ability to rise above the barrage of bad news: “The market now believes that the US economy will be able to leave a crisis behind very quickly.” (AP)
Translation: The currency market is psychic.
Not likely. Truth be told, the dollar is not reacting to some as yet unknown future; instead, we see past and present linked by clearly observable wave patterns. To wit: The U.S. dollar’s most recent break out got started on August 3.
And, in the August 1 Short Term Update, our analyst went on high alert to the market’s upside potential with the following close-up:
Two things jump out on the chart: Momentum is in a clearly underbought position AND prices are well below their Upper boundary channel line. In the August 1 Short Term Update’s own words: “The Dollar turns up. The key benchmark for the bullish case remains the July [] low. The index should not even approach this low any time in the future.”
Now, in the Monday, August 11 Short Term Update, our analysts present a newly updated price chart of the dollar that shows how high prices are set to fly. Stay tuned to the Dollar’s next big move via a risk-free subscription to the Financial Forecast Service.
Editor's Note: Active forex traders will find 24-hour-a-day forecasts for the EUR/USD and other currencies inside EWI's Currency Specialty Service online right now.