The US dollar has been rallying for a year now, against the inflation trades and against the ‘death of the dollar’ cult. Uncle Buck knew that the Fed had to get tough (although it’s still mainly in words vs. action) and now that everybody and his uncle knows that the Fed has to get tough USD is blowing off toward an overbought upside (conveniently as casino patrons fly out of stocks in search of liquidity).
We originally managed a bottoming pattern, which is no longer visible on this daily chart. What a long, strange trip it’s been since then. USD is vertical now and that is not likely to be sustainable. It appears to be an ending move, which in fine contrary fashion would go well with the now hawking Fed.
Here is weekly Uncle Buck, poking a new cycle high.
The monthly chart is where it gets really interesting. Unfortunately for dollar bears, there is historical precedence for a continued spike rally. That comes in the form of the 2014 Goldilocks rally that long-time subscribers may recall we caught in its infancy. The difference is that today the rally is driven by threatened hawkish policy and recently a surge to liquidity by risk ‘off’ market participants. It’s not very Goldilocks, at least not yet.
What we also see here is USD having retraced more than 62% from the March, 2008 low. It is also at long-term resistance. There is another resistance level above and depending on liquidity seeking casino patrons it could easily continue to spike to the next resistance area at 112. That would likely bring a lot of damage to inflated assets if it happens. But at some point the spike is going to flame out.
Trying to guess where that point might be is just that, guessing, in my opinion. But when it comes we could have the makings of gold signaling a new phase where the hawking Fed STFU (that’s shuts up, by the way) and eventually reverses course as inflation signals evaporate. That picture would be deflationary.
Just a FYI view of the world’s senior currency.