Whatever happened to world reserve currency safe haven status? Yikes!!! Now global risk is hammering the greenback; a bad sign indeed when what was once relative good news is now taken as bad.
Looks like the dollar index has room to go lower … MACD weekly turning down, multi-week low tested/penetrated today …
US Dollar Index Weekly:
Here is the litany of stuff:
Middle East chaos and attendant oil price surge
Rising tensions in China (Aussie of course keeps climbing against the buck on that raw material)
Potential stagflation quagmire in the UK; the pound testing its intermediate-term high against the dollar
Growing Greek and Ireland discontent; giving the euro a risk bid and also testing intermediate-term high against the dollar
In short, the market is telling us that geopolitics doesn’t matter and yield, or expectations of rising yield differentials, does.
Without trying too hard to think about why (as that is very much a mug’s game at times, we know), we will do it anyway here:
1) US growth expectations ratcheting down on
a. Concern it was a false premise anyway and stimulus-related to a large degree, which is set to end.
b. Rising oil prices will hurt the US consumer
c. The Fed will continue to supply plenty of money to keep other world markets flush with liquidity
i. More US money runs offshore
2) Rising inflation, real and imagined, is hiking yield expectations in eurozone despite the reality of austerity and social tension
a. Yield coupled with lower relative US growth view does the deed for the European block against the dollar (UK still a wildcard here we think).
3) China will do all to keep it together into the next government
4) Middle East kleptocratic cleansing presents US with ever more risky foreign policy choices
The thing is, all this is a post-facto set of rationales overlaid on price action. The core problem in the world, the one that created the great credit crunch of 2008, is global rebalancing. And that problem is worse now than it was before the credit crunch.
So, sell the dollar, don’t worry about external events and hope the 800-pound gorilla in the room doesn’t again rear its ugly head; if it does, we think US treasuries become the hiding place once again (forcing very large pools of global capital to buy the dollar to get there). Thus, all those neat and tidy rationales evaporate overnight. Hmmm …