Last week I didn't write on the dollar, instead focusing on the turmoil in the market. Since the last time I wrote about the dollar we've had two dollar negative developments. The first was the 2nd quarter GDP report, which printed a very weak number. Secondly, the Federal Reserve announced they would leave interest rates low until 2013. Both of these events should have been dollar negative. The weak GDP report would lead investors to look for higher growing economies while the Fed's announcement would mean the interest rate return for investment parked in dollars would be little to none. However, the dollar instead continues to move sideways:
The dollar ETF is trading in a roughly 80 cent range, between 20.90 and 21.7 and has been for several months. The volume indicators have a slight negative bias, but nothing strong enough to indicate mass selling. The MACD shows little to no direction at all.
What's interesting about the last two weeks events is they should have sent the dollar tumbling. A weak GDP report indicates there is little reason to park dollars in the US; the Fed decision indicates there is no interest rate incentive to buy dollars. And the S&P downgrade correctly pointed out that the US political system is a wreck more interested in partisanship than solving problems. Yet, the dollar didn't crash, instead continuing to form a solid base. The dollar is -- at least, so far -- the least ugly of several options. However, keep a strong eye on the 20.9 area; a move through that would be a problem.