- The past month for the euro has been very strong against the US dollar, as trade tensions continue to be a major focal point.
- Despite the fact that interest rates are rising in the United States, there has been a bit of a capital flight from the United States as foreigners repatriate currency.
- However, there is another argument to be made that might be playing out, and that’s the fact that certain foreign governments may be forced to raise dollars in a situation that is so chaotic and unknown.
When looking at the chart, the weekly candlestick that made up the 3rd week of April is very interesting. It ended up being a shooting star right at the 1.15 level, an area that is a large, round, psychologically significant figure, and an area that’s been important multiple times in the past. Because of this, I am paying close attention to this market because I do believe that if this market starts falling with any type of significance, we will see the US dollar reemerge as a very strong currency. It’s very difficult to imagine a situation where the US dollar suddenly gets hamstrung for the longer-term when there is so much doubt.
Bond Markets
This is all about bond markets. While the US bond market has been sold off quite drastically, it’s interesting that recent data shows that the Chinese are actually ramping up their buying of 10 year T-bills. In other words, the narrative isn’t quite right, but once we get the April data, that could give you more of a “heads up” as to how the US dollar may behave.
I think there is a lot of chaos in the world, and it is difficult to get clarity as to where we go next, but it certainly looks as if the euro is starting to run out of strength. This doesn’t mean that we have to fall through the floor, but anything below the 1.12 level would have me getting bearish pretty quickly. On the other hand, if the market takes out the top of that weekly candlestick, we could see the euro start driving toward the 1.18 level above.
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