The Charts: Ugly Equities And A Range-Bound Dollar

The major central banks have met, and not one felt it incumbent upon them to take fresh policy action. Despite some dramatic intraday swings and close scrutiny, the euro-dollar exchange rate continues to be mainly in a $1.17-$1.19 trading range that has dominated since the end of July. All the brouhaha about the rapid rise of the euro misses that it has been moving sideways for nearly two months. With all the commentary on the euro, it was the yen, whose 1.6% gain last week, led the majors.  It arguably was a cleaner way to express a bearish dollar view. The dollar broke below JPY105 in the middle of last week for the first time since July and remained below there ahead of the weekend. It approached the July 31 low set near JPY104.20.  

While the major currencies were rangebound, the two emerging market currencies we monitor here, the Mexican peso and Chinese yuan, continued to trend higher. The peso has appreciated now for six consecutive weeks. It has recouped more of its steep losses suffered earlier this year. It has risen by almost 9.7% this quarter. In fact, here in Q3, it has been the best-performing currency in the world and pays around 4.40% on cetes (Mexican T-bills). The yuan's advance extended for the eighth consecutive week. It has fallen in only one week since the end of June, during which time it has appreciated by about 4.3%. If something is going to change, it seems that the peso and yuan stabilizing is more likely the majors breaking out.  

Dollar Index:  

The Dollar Index is in the 92.00-94.00 range. Participants get excited when one side or the other is approached. The breakout after Powell's Jackson Hole announcement proved a head fake, and it may have proven to be the case even if ECB economist Lane did not speak on September 1. The momentum indicators are pointing lower. While we do expect an eventual breakout to the downside, it may not be ready quite yet.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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