Currency War?
Fundamentals
One of the hot button issues the G20 ministers may be discussing at their upcoming meeting is the widespread devaluation of currencies -- a mindset that many believe could lead to a "currency war". The US seems to be talking out of both sides of the mouth on the issue, raising concerns over other nations' attempts to devalue their exchange rate, and at the same time pressing China to bolster the Yuan. Many developing nations are concerned that a drop in the value of the US Dollar could undermine their economies by making exports of their goods more expensive. A joint statement by the G20 could put some pressure on these nations to let their currencies appreciate, which can be seen as Dollar bearish. Due to its inverse relationship with equity prices recently, the US currency could be in for some extremely choppy trading due to earnings season. Barring a major setback in equity prices, the US Dollar could continue to trend lower.
Trading Ideas
Dollar fundamentals may actually worsen after the G20 meeting in Seoul next month. Technically, the December Dollar Index chart is trending lower, without any sign of stabilizing. Some traders may wish to explore the possibility of entering into a short futures contract on a close below 76.88, with a protective stop at 78.50 and a downside target of 75.00.
Technicals
Turning to the chart, we see the December Dollar Index chart continuing to trend lower. The market was unable to gain any momentum after closing above 78.50 on Tuesday, reversing sharply yesterday. This also marked a failure to cross above the 50-day moving average. The RSI indicator has come back from oversold levels and is now neutral.
Rob Kurzatkowski, Senior Commodity Analyst
