•While in the near term we could see a period of relative USD strength, we continue to believe that technical as well as fundamental factors will likely result in further medium term USD weakness.
Comparisons with previous multi-year cyclical moves can be very helpful when looking at the “big picture”.
History set to repeat?
We have been watching this overlay since 2004. A continuation of this trend would suggest new highs in EURUSD by early 2010 similar to that seen in 1991-1992
We would not rule out the possibility of the mid to low 1.30’s in EURUSD before higher again
Present price action is very similar to that seen into July last year before EURUSD turned lower.
A close below the 55 day moving average (1.4079) would suggest at least a test of 1.3740-50 support again and possibly as far as the 200 day moving average (Presently standing at 1.3431)
GBPUSD looks even more susceptible
With the 200 day moving average at 1.5191- suggesting higher levels may be likely on EURGBP.
If Crude is down…then a higher USDCAD also looks likely-USDCAD and inverted Crude
What are the fundamental barriers to USD strength?
USD has been stronger than it should have been in the last 20 years as it enjoyed unchallenged reserve status
Trade, current account and budget deficits
No USD strength since 2002. What do we mean? The USD had 2 periods of demand
– 2005 - As a result of the H.I.A. (Homeland investment act providing companies with tax benefits for repatriating profits)
– 2nd half of 2008 as USD was in demand as funding difficulties created the credit crunch
Outside of these 2 periods EURUSD has never fallen by move than 12 big figures (1200 points) since the bear market for the USD began in earnest in 2002.
Reserve diversification (Other currencies and hard assets as reserve holders increasingly diversify)
Need for stimulus….Weaker USD may in itself become a stimulus (Revalue assets to debt, help exporting companies, stimulate inflation etc.)
Foreign Exchange….What now for the USD???
Linear Mode
