Traders Sack the Greenback!
The U.S. Dollar continues to take a beating, with September Dollar Index futures at lows not seen since September of 1992, as fears of a slowdown in the U.S. economy signals a need for the Federal Reserve to cut interests rates. Friday’s employment report shocked traders, as August payrolls unexpectedly fell by 4000 jobs. This news, combined with the recent credit crisis brought on by the subprime loan situation, has suddenly renewed fears that a recession is possible. Yesterday, Fed Governor Mishkin and Fed Bank of San Francisco President Janet Yellen both spoke of slowing growth in the U.S. due to credit market woes. Fed Fund futures are now pricing in a 76% chance that the Fed will lower rates by 50 basis points at its September 18th meeting. This comes after the European Central Bank kept interest rates steady and did not rule out the possibility of a rate hike by the end of the year if the credit situation improves. The potential narrowing of the yield differentials between the U.S. and Europe is a negative for the U.S. Dollar, as Dollar-denominated investments become less attractive to foreign buyers. However, there are some analysts who believe the Dollar has become oversold at current levels and expect a rally, especially if investors start to liquidate foreign investments for the safety of U.S. Treasuries as the recent volatility surrounding the credit crunch continues.
Looking at the daily chart for the September Dollar Index, we notice prices holding well below all the major moving averages. Momentum is very weak as new contract lows are being made today. The 14-day RSI has moved into very oversold territory, with a reading of 18.93. 78.95 appears as the next support point for the September Dollar index, with the September 1992 lows of 78.43 being a major line in the sand for Dollar bulls. In early trade, September Dollar index futures are trading at 79.74, down 0.07.
Mike Zarembski, Senior Commodity Analyst
