Monday, June 11, 2007

Dollar Update

From the WSJ:

The dollar's renewed upswing looks likely to persist this week as investors seem to have discarded the possibility of a cut in U.S. interest rates in the near future.

The central issue for currency traders this week is whether the market has overshot, and whether data this week -- including reports on retail sales and consumer prices -- will undermine or confirm the more upbeat view of the economy.

Look for confirmation, many analysts say.

"We haven't seen the bottom in the bond market," said Matthew Strauss, senior currency analyst at RBC Capital Markets. "The trend -- a gradual upward trend in yields -- has been established."

This week's data and a smattering of Federal Reserve speakers will be evaluated against this backdrop, with investors likely to take better-than-expected data as confirmation of market sentiment and to be less willing to reverse course on disappointing figures, he said.

Let's take a look at the daily and weekly dollar charts to see what's going on.

On the daily chart, the dollar has broken to the upside of the short-term resistance. In addition, the dollar index is trading above the 50-day SMA and had two solid days of gains at the end of last week. The short-term trend is bullish.

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The long-term trend is still trading below the 50 and 200 day SMAs and the long-term trend line. The long-term trend is bearish until the dollar index breaks through one of these trends.

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Remember that last quarter international sales helped to boost earnings. One of the reasons for this increase was a weaker dollar. I don't know where the line is on the dollar index where it starts to meaningfully impact international sales. However, it still bears close watching.