Dollar Outperforms in Best Month Since May Amid Budget Cuts
Comment of the Day

March 01 2013

Commentary by Eoin Treacy

Dollar Outperforms in Best Month Since May Amid Budget Cuts

This article by Taylor Tepper and John Detrixhe for Bloomberg may be of interest to subscribers. Here is a section
The dollar's advance underscores how investors are backing the world's biggest economy to weather the effects of the spending reductions, known as sequestration, that take effect today. While the non-partisan Congressional Budget Office said the cuts will wipe 0.6 percent off U.S. growth this year, home sales, consumer confidence and employment are improving at the same time that the Federal Reserve vows to continue its unprecedented support.

Eoin Treacy's view The US Dollar has long been considered a safe haven in times of stress. This has certainly been the case over the last few weeks as the Italian election has brought anxiety about Europe's prospects back to the surface. Concurrently, the Japanese and British continue to devalue their currencies. Despite political stalemate and quantitative easing the Dollar offers the least bad option among reserve currencies at least for now.

The Dollar Index almost halved between 2002 and 2008 before experiencing a sharp rally and lengthy ranging. We describe these conditions as a V-bottom with right hand extension at The Chart Seminar and a sustained move below 70 would be required to question that view. The Index found support near 78.75 four weeks ago and a clear downward dynamic would be required to question potential for some additional upside.

The Asia Dollar Index continues to drift lower and a sustained move above 118 is required to check potential for an additional test of underlying trading. The Latin America Dollar Index failed to sustain the move above 106 and has fallen to break the three-month progression of higher reaction lows. A sustained move back above 106 is required to check potential for additional weakness.

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