Dollar Breaks Down

Marc To Market's picture

The re-opening of the US government after a 16-day shutdown sparked a sell-off in the US dollar that has deteriorated the near-term technical outlook.  The combination of setting the stage for a repeat of the brinkmanship in early 2014 and the recognition that the Fed's long-term asset purchases are unlikely to be slowed this year, provides the fundamental backdrop.  


The prospect of unabated asset purchases by the Federal Reserve favor risk assets.  It will likely reinforce the flow into Spanish and Italian assets, and European distressed asset more broadly, including Greek bonds and stocks.   The recovery in emerging markets can continue, even if more selectively.  Here, South Korea, Taiwan and India have stood out in recent weeks. 


Another key characteristic of the price action is the continued decline in implied volatility.  The 3-month implied euro volatility has fallen to new six-year lows even as the euro appeared to break out of its month long consolidation range.  Implied yen volatility has fallen below 10% for the first time since January.  It peaked near 16.4% in June.  


The implied volatility of the other major currencies is also trending lower.  The implied volatility of sterling is approaching 5-month lows it falls through 7%.   Near 8%, three-month implied Aussie volatility is at the lowest level since mid-May and the 5.5% implied volatility of the Canadian dollar has not been seen since mid-year.  To the extent that risk is defined as volatility, the lower implied currency volatility is conducive to greater risk taking and a reduced need (and cost) to hedge.    


The euro is approached the year's high, set in early February near $1.3711, though stopped just shy of it.  Assuming this is breached next week, the next target is near $1.40.  The main caveat from our technical analysis is that the euro closed above the top of its Bollinger Band (two standard deviations above the 20-day moving average) two consecutive sessions at the end of last week.  


Even though the returns in the foreign exchange market are not normally distributed,  arguably undermining the value of such concepts as standard deviations in the first, it is still a rare occurrence. It did take place this year in June and September and although neither time marked a significant high, there was at least a cent pullback.  This would seem to argue against chasing the euro at the start of the week and look for a pullback into the $1.3590-$1.3615 area as a lower risk buying opportunity.  


Sterling does not appear as over-extended as the euro, but its gains do not appear to have been confirmed by the Relative Strength Index.  The high set at the start of the month near $1.6260 is the next immediate target, and over the slightly longer term, potential extends toward $1.6400.  We peg initial support near $1.6100 and $1.6060.  


The dollar is making a third lower high against the yen since peaking in late-May near JPY103.75.  The dollar briefly poked through JPY99.00 on October 17, then it reversed lower and closed below the previous day's low.  Follow through selling was seen the next day and the greenback finished the week at six-day lows.  The market appears to be set to re-test the 200-day moving average that had been successfully tested on the October 7-9.  It is found near JPY97.15.  Below there, the JPY96.50-70 band is reasonable near-term objective.   Lending credence to this negative dollar-yen view, the US interest rate premium over Japan has slipped below 200 bp to its lowest level in nearly three weeks.  


The price action at the end of last week also negated the bottoming pattern that the dollar had appeared to be carving out.  The low for the year was set on October 3 near CHF0.8970 and although the dollar held just above there before the weekend, near-term potential extends toward CHF0.8880-CHF0.8930.  That said, the Swiss franc many under-perform in the period ahead as some will prefer it as the short-leg of carry positions, especially against the Australian and New Zealand dollars. 


The US dollar posted an outside up-day against the Canadian dollar on Tuesday, only to reverse lower Wednesday and experience follow through selling into the weekend.  Still, the Canadian dollar was the worst performing of the major currencies last week, gaining only 0.6% against the greenback.  A break of the CAD1.0270 area could signal a move toward CAD1.02.  


However, the Canadian dollar still looks poised to lag behind the other dollar-bloc currencies.   The other dollar-bloc currencies are in strong uptrends against the Canadian dollar and these moves still appear to have room to run.  The Australian dollar is testing the CAD0.9945 area and, a convincing break, could signal a move toward CAD1.0125.  For its part, the New Zealand dollar is set to test the year's high near CAD0.8780, which is also an eight-year high.  A convincing break suggests technical potential toward CAD0.9000.  


The Australian dollar, like the euro, finished the last week with two consecutive closes above the top of the Bollinger band.    This has not taken place since April and marked an important high.  While this time is seems different, rather than chase the Aussie higher, look for momentum players to buy into a half to a full cent decline.  The next immediate objective is near $0.9715 area, which corresponds to a 50% retracement of the decline since the April high, and then $0.9800.     


The Mexican peso has appreciated by about 4.4% against the US dollar since October 3.  However, the inside trading day record on October 18 may suggest a near-term consolidation phase lies ahead.  With a base near MXN12.75, the dollar can rise toward MXN12.93 initially.  The MXN13.00 area may provide a stronger cap.  Expectations of building for a rate cut at the end of next week.  We note that the other two times that the central bank has cut interest rates this year, the peso has rallied in response.  


Due to the government shutdown, the Commitment of Traders report on positioning in CME currency futures is still unavailable. 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
lakecity55's picture

Fuck the Reds

And Fascists too

From the USA

To the EU.

banzai401's picture

Experts in the UK have been begging for months that the USA 'reset' have a Jubilee and cancel all the DEBT.

Funny you don't hear anybody fly that in the USA MSM?

Without a 'reset' on DEBT then you have to have a CULLING ( kill all lower/middle class ), to get rid of the 'expense' of the free-shit-army.

Politically the entire USA is now Bambi in the HEADLIGHTS, but this GENOCIDE idea is on autopilot, and given that there is no talk of a Jubilee the Genocide is coming.


My guess is that Jubilee is like Genocide, nobody talks about either, but the Genocide is in motion with the DHS and their acquisition of 3billion rounds and 3,000 humvees, while I see nothing moving on the Jubilee.


One last point on 'genocide'

Even if you had the 'Jubilee' you would still have the fucking problem of the FSA ( free shit folk ) that are +90% of the USA public, so they have to quit getting shit for free, which means they're going to starve and die, ... so either way this is going to end in wholesale slaughter.

doMiKY's picture

Freedom would involve some financial ability of self determination.  Americans do not have this now.

Kina's picture

At the end of the day amid the chaos the US final option will be to go to gold silver to put a floor under the currency. 

Element's picture

Look also at the resources the US has, even if it trips-up and big-$ dies the US itself can and will come back, just minus the dollar 'advantage', and free of its downsides as well (the ones that everyone in the US complain about but are otherwise blind to and don't want to see the connection).

And keep in mind that Russia doesn't have the reserve currency 'privalage', yet they seem to do ok and live fairly well ... using and trading real things.


So who is it that desperately wants to control global currency?



Hint: there are some revealing historic quotes about that one.

steveo77's picture

Impeach all traitors to the USA, to our basic law, The Constitution.     Jail the past presidents who have been complicit in subverting the Constitution.       Its not just those in power now who deserve to be caught Holdering the bag

Quick list of subversion of the Bill of Rights here....takes 45 seconds, it will open your eyes.

SAT 800's picture

The post is a perfect example of "buy the rumor, sell the news". The decline has already halted, and it's time to short the major trading partner currencies such as the Euro and the GBP.

JamesBond's picture

It is the JPY that has broken down from over 100 to U$D to 97.8 U$D

This article is bunk.




Martdin's picture

When are we going to get the updated COT report from CFTC? The EUR longs in September were already the highest they've been in a few years.

SAT 800's picture

Yes. It's already the end of the "rally to the sky" for the Euro, and time to short it. Also the GBP; the post manages to be perfectly out of phase by being late.

QEternity's picture

We sell souls at discount price
Livin in a banksta's paradise

emmadavis's picture

and now, US debt rises $328 billion in single day, surpasses $17 trillion for first time

jonytk's picture

"when i sold my gold its only to get bitcoins" (tm)

All Out Of Bubblegum's picture

Bitcoin up $15 today. China likee Bitcoin.

Spigot's picture

BTC chart looks like top of channel being about 175-180 before retrace to touch 150. At $165 I am pleased with the 50% appreciation in my position vis a vis the US$. I will add to my pile again once the price retraces to 150. A 50% appreciation in 10-11 weeks is a beautiful thing.

Sufiy's picture

US Dollar has lost crucial support at 0.80 and poised now to go lower to 0.75. Gold was hit hard in order to preserve the line in the sand of at 0.80

Max Keiser: Alasdair Macleod Investigates The $640 Million Sell Order Of Gold. 

 We continue to follow The Crime Of The Century - Gold market manipulations. Today we have Max Keiser who investigates with Alasdair Macleod the 640 million Sell order of Gold which disrupted the trading session on Friday 11th and was supposed to Kill the rest of the confidence in Gold safe heaven status. Chinese are not buying into it any more and moving fast now with their state level long term plan of diversification its Reserves out of US Dollar denominated assets.

lasvegaspersona's picture

Fofoa has a new post today. It shows that the vast majority of 'gold' trading takes place in the Forex markets. THIS is where gold is priced.

This is one of his most important articles and describes gold pricing in a way no other gold writer seems to have noticed.

OutLookingIn's picture

Events are forcing China to move quicker.

The Chinese yuan is at a 20 year high against the USD and continues to gain strength.

There are two ways to bring it back down; The Chinese can print a vast amount more, or buy a vast amount more dollars. Neither option is palatable to the Chinese leadership. The third option is to speed up their plan to supplant the USD as the worlds reserve currency with something else. Until they are ready to unleash the yuan.

WillyGroper's picture

BGiB, always enjoy your perspective.

bank guy in Brussels's picture

Regarding the US dollar, it is actually in worse shape than any other paper currency ... the major thing to understand is the petro-dollar, the reason the US has been pushing for war in Syria / Iran with its Saudi and Israeli partners ... that is all petro-dollar

Consider the .5 trillion USD annual US trade deficit, the largest trade deficit in world history, trillions of stuff that America buys and does not pay for except with fake printed money and debt bonds that will never be paid

The petro-dollar is the gigantic global economic fraud that has been the only thing keeping the USA alive since the 1970s, when they made the dirty deal with Saudi and Israel to force the entire world to price oil in dollars, and thus to hold dollars and US Treasury bond debt

Unlike any other successful region, the US has had no organic economic growth since 1980 (ZeroHedge, Karl Denninger etc), it was all trillions of debt, floating on the petro-dollar ... even the Reagan-era boom was fake, floating partly by extortion against Germany and Japan, forcing them to self-limit their own strength so the dollar could stay alive

The US dies without the petro-dollar, and is dying right now, actually in danger of overnight becoming another Greece

Here in Europe we have an even-to-positive global trade balance, Japan very positive over the years ... but the Americans essentially steal from the whole world, trillions ... and call themselves a 'success'

That is why they went to war against Iraq and Libya, they were starting to price oil in non-dollars, plus were rivals to the Saudis for Arab leadership

That is why the Saudis are encouraged to take their dollars and finance Muslim schools teaching extremism and sowing chaos in the Muslim world ... a more natural, democratic, moderate Muslim world, which was the Muslim trend without the Saudis, means the end of the cruel Saudi regime, the end of the dollar and USA power with it

That is why the US oligarchs allow all the excessive one-sided support for Israel and war crimes against Palestinians etc, it is code for the petro-dollar ... because Israel is the half-secret twin party of the Saudis, to support the petro-dollar, helping create distracting hostility in the Middle East around Saudi and the oil lanes ... Without US support and petro-dollar financing, Israel implodes too

That is why the US and Israel invent lie after ridiculous lie, to try to escalate war with Syria and Iran ... because Shia Iran is an inspiration to revolution against the brutal Saudi regime which oppresses most of its citizens but especially Shia who live where the oil is ...

And Iran not only prices oil in non-dollars, Iran shares its oil funds with its citizens as national income, while Saudi oil money is considered royal family personal property ... and other non-Sunni countries allied with Iran (Syria, Lebanon) are thus also targets as part of the 'road to Iran' and standing implicit threats to the Saudi-Israeli-US axis

Iran has primitive Islamic brutality too, but it is their threat to the petro-dollar that is the basis of US-Israeli war-mongering against them. Iran has not attacked any other nation in 250 years, and tens of thousands of Jews live protected in Iran and consistently refuse fully-paid emigration offers to Israel ... Iran never threatened to destroy Israel, as per that famous lying mis-translation, Iran merely said the Israeli regime will not last ... which Henry Kissinger and many other Jews say as well

America's military head General Dempsey was told that, as much as he is sickened by US war crimes and killing of children in Syria in those 'chemical attacks' falsely blamed on Assad but actually done by Saudi-Israeli Al-Qaeda goons ... Who apparently even kidnapped some Syrian children and suffocated them to death to make YouTube videos ... Dempsey was told that America will be broke and bankrupt if Saudi falls, and hence the ugliness in the Middle East, the pressure against Syria and Iran, must continue

It is all the petro-dollar, and when the Saudi regime blows over, so does the ability of the US to steal a half-trillion every year from the rest of the world, and not pay for it

A new, very different world is indeed on the horizon ... but what is frightening is that, since the collapse of the petro-dollar means the likely collapse of the US economy, the US may risk World War III to try to prevent its decline as an empire ... and Russia and China, for their part, cannot let the US take control of the Middle East and its oil either.

Rapprochement with Iran will be limited and frustrated for this reason, tension is structural to US-Israeli-Saudi survival now, no 'diplomacy' or 'attitude change' can heal this. At best, partial easing with Iran is conditioned on China-Russia giving US 'breathing space' for a few years to maintain petro-dollar; this may have been part of recent deal re Syria, that Saudis and thus petro-dollar will remain propped up.

neidermeyer's picture

You lost me with those lies about Iran not attacking any other country in the last 250 years ... maybe you forget about the Iran-Iraq war ,,, maybe you forget that PERSIA renamed itself IRAN after their spelling of AYRAN when they were allies of the third reich and were fighting throughout north africa because they were in love with murdering jews.


You're right about the petro dollar but you're wrong on Europe having a positive trade balance ... when you factor in that the US supplies All of your defense needs... those petro dollars protect YOU in an easily understandable way.

Element's picture

Israel can see the writing on the wall and is becoming desperate to maintain and further enhance the trade, finance and strategic regional disorder:

But I also disagree, Israel clearly is a high priority target, that's a fact, and one they should be working on constructively, but as always, they totally refuse to do so. They are ultimately idiots, no matter what they think of themselves. Thus they only have themselves to blame for what will occur.

banzai401's picture

Well yesterday the SAUD government told the UN to go to hell, that SAUD doesn't want a seat on the UN security-council, that for 65 years the UN has done nothing but make war's and life terrible in the Middle East.

It's quite clear that SAUD/ISRAEL are having a conniption fit for not getting their Syria War as planned.

Me thinks this DEATH and legitimacy of  the UN, is much like that of the League of Nations prior to WWI, ...


The USA is going down, SAUD is running out of oil, and ISRAEL is a fucking parasitic prison. They have no choice but to work together and steal oil to survive.


"BAN" UN chief replied to SAUD, "What did you say I can't hear you?"


WAR is politics by other means, and its clear that POLITICS has failed, and a New World Order is on the Horizon.

Certainly RUSSIA & CHINA will be better custodians, and actually better business men and capitalists. The USA/ISRAEL conjoined twins that share the same asshole is just a KLEPTOCRACY, e.g. a government ran by common criminals.


jeff montanye's picture

you mean ww2. the league grew out of the ww1 peace talks. other than perhaps contending that the kleptocracy has a touch of meritocracy in it, and these are, many of them, uncommon criminals, your other points are well taken.

lasvegaspersona's picture

The 'exorbitant privilege' was given to the USA. The rest of the world has voluntarily used our paper as their reserve and as the prime wealth asset. The wisdom of this decision is now being reviewed.

Robert Triffin predicted the outcome we are now experiencing in 1960. Everone involved (ie central bankers) have understood the problems implied by Triffin's Dilemma and are now surely planning a way to a new monetary system.

We 'freegolders' think the way this will play out can be seen in the structure of the held at market price, as opposed to a fixed price. This will allow the Euro to rise in value as the price of gold rises with a sudden failure of the dollar.

If the dollar does suddenly fail and the price of gold (in dollars) rises to infinity, then the Euro balance sheet will show a loss of value in it's dollar holdings but a soaring value due to it's gold. It seems the structure of the Euro was, by design, made to serve the world as a medium of exchange, in the time of transition from a dollar reserve system.

jeff montanye's picture

now if germany can just get some of its gold back from the new york fed ....

Stuck on Zero's picture

Uh huh.  And the Saintly Eurpeans sent armed forces to Libya, are intervening in Mali as we speak, and are pushing for war in Syria so that they can get a pipeline through Syria to the Middle East to eliminate the Russian gas monopoly. Brussels is no different than Washington ... it is ruled by bankers.



Oracle 911's picture

Sadly true.


Fuck the marxo-fascists from Brussels, DC and from the other parts of the world.

Manthong's picture

Certainly Obama and the Democrats will back down from that WWIII thing for the long term good of the people....

Oracle 911's picture

You forgot the /sarc tag.

Manthong's picture

Anything said positive of Obama or the Democrats regarding the future of the Constitutional United States of America is, by definition, sarc or an outright lie depending upon the context.

Maybe I tend towards hyperbole here.. maybe not anything but certainly most everything.

banzai401's picture

Call it what you want WWIII or whatever,

I call it the great CULLING, or GENOCIDE 2013

Either way you have 2+ generation of ameriKKKans on the DOLE, and now the county is BK, ... and nobody is going to get the Free-Shit,

The gubmint kills them or they kill each other, ... or you send a few off to die to kill abroad, ...

It's going to be really fucking ugly, ... but MAO did it and so did Stalin, and the even the founding-fathers said that BLOOD MUST FLOW every few generations.

"chickens are coming home to roost" - malcolm x, 1963