rounded corner
rounded corner
top border

The Dollar Heads For The Highs


Bookmark and Share

This article was originally published on Nadex.com.

On Monday, February 11 the dollar index rose to its highest level of 2019 as it closed at 96.857. The dollar has been appreciating against other world currencies since January 31 when it turned higher from 94.874. The euro currency accounts for 57 percent of the dollar index and the interest rate differential between the dollar and the euro at 2.65 to 2.90 percent is highly supportive of the gains in the greenback. While the US Federal Reserve still plans to hike the short-term Fed Funds rate twice in 2019, the European Central Bank is likely to leave their rate at the negative forty basis point level based on their most recent guidance. Economic weakness in Germany and the Eurozone continues to prevent the ECB from increasing the rate from negative territory where holding euros involves a cost. 

Source: CQG

The daily chart of the dollar index highlights that the greenback has posted gains over the past eight consecutive trading sessions. Technical resistance for the index stands at the 2018 peak at 97.705. The dollar is heading for the highs, and that could have a significant impact on markets across all asset classes. Meanwhile, a strong dollar is typically bad news for commodities prices given the historical inverse price relationship between the US currency and raw material prices.

Interest rate differentials tend to be a primary factor when it comes to the path of least resistance for currencies, and the dollar offers an attractive yield compared to its peers these days. At the same time, a stronger dollar is not good news for earnings of US multinational companies as a rising dollar makes US products less competitive on global markets.

In the world of commodities, the rally in the greenback has sent the price of gold and silver lower over recent sessions, and it has weighed on the price of crude oil which ran into technical resistance at just under the $56 per barrel level on the nearby WTI contract.

While it looks like the dollar is going to challenge and surpass its technical resistance level which is now only 0.848 away on the upside, some issues could turn the dollar lower over the coming days.

The three-week reprieve on the US government shutdown runs out later this week on Friday. The issues that caused the initial partial closure of the US government have not gone away. The Trump administration continues to advocate for a security wall along the southern border of the US with Mexico, and the leadership of the House of Representatives have not yet displayed a willingness to compromise. Another shutdown could turn the dollar lower. At the same time, the trade negotiations between the US and China in Beijing this week could impact the value of the dollar if there are any surprises.

Markets rarely move in one direction, but the rally in the dollar has gone nowhere but higher in February. Markets always look their best when they are rallying and worst when they are falling. The dollar looks great these days, and there are plenty of reasons why it should keep going. However, there are roadblocks on the horizon that caution that getting too bullish after eight straight sessions of higher prices could be a mistake.

 

 

Get more of today’s market news & video at Nadex.com.



Recent articles from this author



About the author


Andrew Hecht is a commodity and options trader and analyst. He spent nearly 40 years on Wall Street, including two decades at Phillip Brothers, later Salomon Brothers and part of Citigroup. He executed some of the largest trades in precious metals and bulk commodities as well as booking ships, armored cars, and trains for transport. He has worked with the United Nations and maintains a global network of sources.

Andy is a top contributor at Seeking Alpha and other sites, a university guest lecturer, and consultant. His radio show, "The Commodities Hour with Andy Hecht," airs Tuesdays and Thursdays 5-6 PM EST on TFNN. Andy’s first book How to Make Money with Commodities, has received excellent reviews.  

Published by Barchart
Home  •  Charts & Quotes  •  Commentary  •  Authors  •  Education  •  Broker Search  •  Trading Tools  •  Help  •  Contact  •  Advertise With Us  •  Commodities
Markets: Currencies  •   Energies  •   Financials  •   Grains  •   Indices  •   Meats  •   Metals  •   Softs

The information contained on InsideFutures.com is believed to be accurate but is not guaranteed. Market data is furnished on an exchange delayed basis by Barchart.com. Data transmission or omissions shall not be made the basis for any claim, demand or cause for action. No information on the site, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any futures or options contracts. InsideFutures.com is not a broker, nor does it have an affiliation with any broker.


Copyright ©2005-2019 InsideFutures.com, a Barchart.com product. All rights reserved.

About Us  •   Sitemap  •   Terms of Use  •   Privacy Policy