In our December 1 update on DX [Is DX Really Breaking Out?] I (somewhat cynically) suggested that DX’s rise above a key Fib level was just another scheme to convince investors that the markets were doing just fine.
TPTB have done their best to convince the investment world that higher rates are just around the corner — even as signs of a faltering global economy continue to stack up. Ramping the dollar up past a natural reversal point is just one more way to support that meme.
As the FOMC dates approach, keep an eye on DX. A sudden plunge below the .886 would be an excellent way of detecting that investors aren’t buying the story.
Since Dec 1 (the yellow arrow, below) DX has plummeted, forcing USDJPY and stocks lower as “investors” abandoned the yen carry trade. It got a momentary reprieve (the white arrow) when the FOMC raised rates on Dec 16. But, since then, it’s been all downhill until today — where it has nearly reached our next downside target.
Clearly, the dollar’s performance is critical to stocks. What next, then, from the world’s reserve currency?
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