Bulls Turn Green on the Greenback – For Now
Today's noteworthy mover was the Dollar Index. With the overall downtrend in the U.S. Dollar lately, today's was the biggest single-day gain in a long time, leading to questions about whether this is a harbinger for the long-term health of the currency.
A lot of Dollar bears, for instance, are saying that if the Fed cuts rates again in December – which it hinted at earlier this week – it will create a stability problem. After all, why would someone want to invest in our currency when the interest rates are not there? If we have another rate cut, foreign investors will not be motivated to invest in U.S. debt such as government bills, notes, or bonds.
Dollar bulls, on the other hand, may view this as a good opportunity to get into the Dollar. The stock market reacted positively last Tuesday when word came down about a possible rate cut. When the U.S. stock markets rally, foreign investors are attracted to our stock, which can stoke the market further and eventually give the Fed a good reason to raise rates as the economic cycle continues.
Looking at the chart, we are still below both the 15- and 25-day moving averages. The 25-day average acted as resistance several times today with the high brushing against it before sellers came into the picture. We have also moved closer to the top end on the fast stochastic, indicating potentially oversold conditions.
Tomorrow, we look forward to announcements regarding personal income, personal spending, and construction spending among other things.
Mike Tosaw, Director of Education
