We have covered USD in detail. If global asset markets (and especially commodity/resources-related and emerging markets) are going to experience relief, USD will have to weaken. Uncle Buck has finally acted like the counter-party it is to inflated asset markets, after diverging upward against them for much of 2021.
USD (DXY) daily head faked above and now has dropped back below the key long-term resistance decision point we assigned to it. This is coming amid an overbought condition as the hysteria about inflation prompts hysteria about the hawking Fed. In 2021 the bull trending USD ‘bought the news’ of how bad inflation was.
Could USD be selling the news of the hawking Fed now? Yes. Inflation’s ‘Stag’ effects are wearing at the economy (ref. Walmart and Target to name just two) and USD could be looking ahead to economic slowing and a Fed that might some months down the road put away its hawk talons. It’s a possibility, among others. But it is viable. Bottom line though, USD is back below the resistance marker.
Here again is the monthly chart that shows the situation more clearly. The reserve currency is in a cyclical bull market from 2008. With more market liquidity stress in 2022 it could easily continue doing what the 2014 ‘Goldilocks’ spike did. In that case we would target 112 and a lower high to the 2001 high. But that does not mean USD cannot take an interim correction from this resistance point in tandem with some asset market relief.
I am making no predictions here. Let’s be clear on that. I am gauging the situation and in essence making an ‘if/then’ statement. If USD pulls back here then markets can catch a breather and bounce. If USD bulls on through then we should get back to fully guarded mode.