Thursday, August 18, 2011

Friday Dollar Analysis

Last week, I wrote the following about the dollar:
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.
Here is a chart of current prices:

We have a continuation of the overall trading pattern of the last four months, with prices moving between 20.9 and 21.6/21.7. Prices are below the 200 day EMA, indicating we're in a bear market, and all the shorter EMAs are moving lower with the shorter below the longer.

The line chart shows the action in more detail. The strength of support at the 20.9/21 area is impressive.

Above is a chart comparing the Australian dollar, euro, yes and dollar over the last two years. While the euro and dollar have become mirror images of each other, the yen and AD are rallying. The AD has a bid because Australia has a strong resource economy. Japan is catching a bid as a safer environment than the US and euro.

Until the dollar moves convincingly below the 20.9 area, we're still in a trading range.