Time To Sell The Dollar Capitulation

Tyler Durden's picture

Submitted By Nic Lenoir of ICAP

Two key charts this morning for EURUSD: weekly and daily. The weekly chart shows how the market is testing as resistance the old support line of the bullish channel, and last time it attempted to reintegrate the channel last December it rejected it strongly on the close. On the daily chart, we see that the slow stochastic is basically at the same level that corresponds to all the previous significant highs, and we have run all the stops over the past few days after we broke out of the ending diagonal which sets up for a perfect capitulation.

On a fundamental level, last time EURUSD was at 1.50 the rest of the world was growing a lot faster compared to the US than it is now, oil was above $100 as part of a bubble that was about to burst, and global aggregate demand, mainly represented by the US, was about 15% higher. The only fundamental that supports a weak US dollar is the deficit, but yet again the UK is following the quantitative easing path, Japan and Europe are stimulating their economies at the taxpayer's expense, with Japan having no real lesson to give when it comes to nationalizing private debt and consumption (their main policy in the early 90s), and China is running pretty much on stimulus with debt to GDP ratios hardly available for their economy as they are lost in the statistical smoke and mirror show orchestrated in Beijing and a massive over capacity problem... So we are not exactly alone having problems balancing budget, and exporting countries like Germany, Japan, and China, need the US consumer to make a comeback to sustain their consumption beyond their stimulus plans. That can't happen if the value of the USD prevents Americans to shop abroad. Concerning Europe in particular, the ECB is between a rock and a hard place, with Germany's export driven economy hurting and trying to recover, while Spain or Ireland are still deep in trouble (Spain a potential disaster still not exposed).

The only way the USD will keep falling much further is on an attack on the greenback, which is in nobody's interest, even those who think a global currency is the way of the future (more on that in a later discussion). I would recommend selling EURUSD around here, observing a stop on a daily close above 1.4800.

As always good luck trading,

Nic