COMMENT ON TODAY'S DOLLAR RALLY (3:30 pm EST)
It looks like the Fed's hawkish policy announcements yesterday (another interest rate hike and an intention to increase the number of expected hikes this year from three to four) gave a huge shot in the arm to the U.S. Dollar Index today. The dollar soared from 93.5 to 94.76 and is now closing the "gap down" space from its previous high on May 29 which had left a "bearish island reversal" chart pattern earlier this month. That bearish signal will be negated if the dollar can clear 95. The current medium-term dollar cycle is still relatively young and could still be bullish, at least short-term, so this is quite possible.
Curiously, despite today's dollar rally, gold and silver also rallied strongly. Precious metals and the dollar normally move in opposite directions, but under some market conditions they can move in tandem. It appears that the new Federal Reserve chairman Jerome Powell is setting a more "hawkish" tone in Fed policy than the previous chairwoman Janet Yellen (often perceived as "dovish"). Investors will interpret a hawkish Fed as being more fiscally responsible (especially after such a long period of accommodative monetary policy - i.e. ZIRP, QE) and this makes the U.S. dollar a more appealing investment. When equity markets appear to be volatile and dangerous, gold, silver, and the U.S. dollar could all be perceived as "safe haven" investments. Under these conditions, precious metals and the dollar could rise together. We will keep this in mind going forward as we watch both markets.
It looks like the Fed's hawkish policy announcements yesterday (another interest rate hike and an intention to increase the number of expected hikes this year from three to four) gave a huge shot in the arm to the U.S. Dollar Index today. The dollar soared from 93.5 to 94.76 and is now closing the "gap down" space from its previous high on May 29 which had left a "bearish island reversal" chart pattern earlier this month. That bearish signal will be negated if the dollar can clear 95. The current medium-term dollar cycle is still relatively young and could still be bullish, at least short-term, so this is quite possible.
Curiously, despite today's dollar rally, gold and silver also rallied strongly. Precious metals and the dollar normally move in opposite directions, but under some market conditions they can move in tandem. It appears that the new Federal Reserve chairman Jerome Powell is setting a more "hawkish" tone in Fed policy than the previous chairwoman Janet Yellen (often perceived as "dovish"). Investors will interpret a hawkish Fed as being more fiscally responsible (especially after such a long period of accommodative monetary policy - i.e. ZIRP, QE) and this makes the U.S. dollar a more appealing investment. When equity markets appear to be volatile and dangerous, gold, silver, and the U.S. dollar could all be perceived as "safe haven" investments. Under these conditions, precious metals and the dollar could rise together. We will keep this in mind going forward as we watch both markets.
RSS Feed