Currency Of Last Resort?
The strong dollar is taking center stage as economists seek to determine if and when the US economy will rebound. The dollar hit fresh highs last week, but the Group of Seven industrialized nations meeting in Rome over the weekend made no joint statement about the strength of the dollar. Without coordinated resolve to mitigate the strength of the dollar, the buck looks set to continue higher.
There is also the possibility that the dollar will strengthen in a flight-to-safety scramble from second- and third-tier currencies. The Turkish, Brazilian and South African currencies -— the lira, real and rand — each hit all-time lows last week. Currencies from eastern Europe, the Polish zloty and Hungarian forint, have also been hard hit as smaller economies reel from a global slowdown. These fundamental developments provide the backdrop for additional upside in the dollar.
Still following through on Friday’s Turtle Soup Plus One Buy signal, euro FX futures
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PowerRating), the most heavily weighted currency in the dollar index basket, rallied early this morning but have been capped by the June 28 gap (down), which could continue to exert pressure on this market. The euro hit a year-to-date and contract low on Thursday.
The Japanese yen
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PowerRating), from the Implosion-5 List, is in a technical situation that could also benefit the dollar. It is in a head-and-shoulders top that suggests a test to new contract lows: a move twice the distance from the .8530 head to the .8200 neckline implies a test to .7880. Recent downswings also suggest the potential for a symmetrical third downswing of .0250 points from the .8140 swing high, which would correlate with the measured move.
Sep silver
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PowerRating) is also in a nasty H&S top that implies a test down to 400.
Cocoa
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PowerRating) is triggering out of an eight-day Pullback From Lows setup following Friday’s spike tail that corresponded with a test of the 980 congestion range. Cocoa is poised for a larger-than-normal move as it is a Multiple Day Low Volatility setup.