Major Global Currencies
I believe the most important question to ask in any investment thesis is "What if I am wrong?" Below, I explore the current secular trends for select major global currencies and highlight, within the charts, price points that could suggest a trend reversal.
U.S. DOLLAR (USD)
The U.S. dollar is in the midst of a ten year secular downtrend. The bearish fundamentals for the greenback continue - easy monetary policy, an absence of fiscal discipline, and increasing imports of oil.
Technically, the dollar is positioned to challenge the historic March 17, 2008 (Bear Stearns Day) low @ 70.698. To reverse the near term weakness, the USD must recover back above the 74.170, a level that acted as major support from November 2009. It was breached in early April and now acts as major resistance.
USD 10 YR WEEKLY CHART
USD SEPTEMBER 2007 - PRESENT
The "anti-dollar" as traders like to refer to it. As the beneficiary of USD weakness, the euro's fundamentals have improved dramatically over the past 12 months. Monetary policy conditions are beginning to tighten, ahead of the U.S.
From a fundamental standpoint, further appreciation in the euro may be problematic for the sole European growth engine, Germany. I expect we are in the later stages of the recovery from last spring. Technically, 1.4150 to 1.4282 is the foundation for the current advance. A weekly close below 1.4150 stalls the bullish near term momentum.
EURO MAY 2010 - MAY 2011
The Australian dollar and Canadian dollar have garnered tremendous fundamental strength the past year from rising commodities.
The strength in the Canadian dollar is more vulnerable to a correction since it is reliant on rising oil alone. In fact, it recently has breached the 50 day moving average. I expect the Ausie dollar to maintain a slight "commodity currency" advantage as it not only benefits from rising commodity prices, but also benefits geographically as the provider of goods and services to Asia, China in particular. Technically, it has yet to breach its 50 day moving average @ 1.0376.
Ausie $ May 2010 - May 2011
Canadian $ May 2010- May 2011
An aging population, declining competitive position within Asia, and a heavily export focused economy need a weaker currency. The yen, however, continues to appreciate. The appreciation is largely attributed to Japan maintaining both a trade surplus and current account surplus.
Unfortunately for the Japanese economy, the yen is positioned to challenge the 15 year low of March 17, 2011. Not a favorable technical picture for a declining economy with a limited growth outlook and still struggling with deflation. I would expect further BOJ intervention if the March 17, 2011 low is breached. However, the more the BOJ intervenes, the less effective its methods become.
JAPANESE YEN DECEMBER 2006 TO PRESENT
JAPANESE YEN YEAR TO DATE