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While I am far from being a scholar in economics, I want to harp on the factors that underpin a currency. The first that springs to mind is that a country must have little or no debt and a trade surplus in order for its currency to be strong. A casual observer of US economic policy would realise these are two areas that the US is falling behind in. If the US Dollar was to lose its long-term value, the threat of no longer being regarded as an international reserve currency would become very real.
As I said, the underlying factors don't read too well. This alone for me is far from a signal to short the dollar, as for all the negative sentiment, there is plenty of participants who have a vested interest in supporting the US dollar, so this is where the technical aspects come in.
In the bar chart below I have focused on the data since September 2004, and included a swing overlay to highlight the trend. The main pattern we can see is lower highs and lower lows - measuring our swing ranges is also critical here. The price action has expanded on the downside ranges and contracted on the upside. |