US Dollar Index Rallies from 7 Month Low

Tuesday, 27 September 2010

The US Dollar Index made a move overnight to boost it to a point above the recent 7 month low. As of the Asian trading session, the USD/JPY currency pair was trading at 84.20 – still down on the 85.00 or so level reached after the Foreign Ministry intervention a few weeks back – but nevertheless above the low of the currency pair.

The US Dollar index itself traded at 79.42 at the time of writing (2:42 Japanese Standard Time) – which was a fair distance from the low set a few days ago. Despite this rally however, many market commentators and players still believe that the US Dollar is firmly stuck in a rut, and this is simply a correction to the overall and longer term downtrend.

Will this downtrend continue, or is this rally the start of something new? US Dollar bulls probably shouldn't get too excited at this stage. As yet, there are absolutely no other indicators that the dollar is anywhere near a long term reversal.

On almost all fronts – technical and fundamental included – the US Dollar rally simply doesn't stack up. Investors remain nervous as to the country's long term potential, and therefore we too are extremely cautious to call for a reversal of the fortunes of the currency just yet.

It seems that the United States simply cannot do anything right in investors' eyes at the moment. Amazingly, despite a report at the end of the last week that the US Fed is looking at paring back bond auctions to reduce debt, the market simply shrugged the news off. Either investors don't believe a word that the Fed is dishing out – or they are simply too scared to place a trade and take a side.

Unfortunately, it seems that whatever the Fed might choose to do in the future, they are practically doomed when it comes to debt. They have issued so much over the past year that it seems almost inconceivable that they are going to be able to continue to service it – at current interest levels – in to the foreseeable future.

Nevertheless, we will continue to keep our eyes peeled on both the USD and the rest of the Forex market.

If there was one sure thing that we could point out at the moment however, it would be that the market is most certainly on edge. The slightest bit of news out of any country could change the fortunes of the majors – such as the USD, EUR, or JPY, for both the better, and the worse.