The US Dollar Falls To New Lows, And So Do The Excuses To Explain It

The DXY Index, which is widely cited in the financial press as the "Dollar" or "US Dollar," has seen a correction that began in January of this year after topping at the 103.82 level, and has continued into this week's (Tues July 18) low, which came in at 94.48. This represents a move of just under 9%, which in the currency markets is not a small move.

Over this time period and since the 103.82 high was made, the DXY Index has been following a fairly clear pattern down off of that high and into current levels. In fact, for the past several months we have been following this pattern as it continued to follow through, hitting most of the expected Fibonacci levels into the July 18 low. Currently, the DXY is sitting on both the 176.4 Fibonacci extension of the initial move down off of the January highs and just under the 200 Fibonacci extension of the move down off of the April highs.

Additionally, we do now have what could be considered a completed three-wave pattern off of the January highs in addition to several other technical indicators signaling that we may be getting close to at least a local bottom in the DXY.

I have recently been writing about the so called "bombshell" news events that the financial press and media pundits love to assign to market moves. We have seen these "bombshell" events run the gamut from Brexit to Trump's surprise election to Russia meddling in the US election. Most recently, we had the release of emails from Donald Trump Jr. in regards to a meeting that he had with Russian nationals during the Campaign. I discussed how this media "bomb" turned out to be yet another dud as far as the financial markets were concerned in the article I wrote on the Dow on July 18.

Tuesday’s "bombshell" news that was all over the financial press today was that US Dollar was down because the Republicans were unable to be able to pass their healthcare bill, thus causing the Dollar to move lower. Of course, the question that comes to mind on this news is:  What exactly does the Republicans not passing a healthcare bill have to do with the value of the US Dollar?

The pundits, of course, were arguing that this was evidence that the "Trump Trade" was breaking down and that it was becoming clear that Trump would be unable to move forward with his pro-business agenda; well assuming that we were to buy that argument and if that was indeed the case, then why did this news not cause US equity to move lower. Both the S&P 500 and Nasdaq closed the up on the day and only the Dow Jones Industrial Average closed slightly in the red.

Shouldn’t this news have caused stocks to go move lower? Surely, the hint that there will now be no corporate tax reform, no healthcare reform, or all of the other pro-business polices that are on Trump’s agenda should have had a much more drastic effect on stocks than the US Dollar. I mean, really, isn’t it higher interest rates that are supposed to cause the Dollar to move higher? Well, rates have been going up all year yet the Dollar has been going down. We didn’t hear much about that since it didn’t fit the narrative on this topic. So now after the Dollar is down close to 9 percent off of the January highs all of the sudden a small half a percent move was caused because the Republicans could not pass a health care bill.

Now we are supposed to believe that after the Dollar is already down close to 9 percent since the January highs, all of the sudden a small half a percent move at the tail end of this move was due to the fact that the Republicans could not pass a health care bill. Really? I have a suspicion that something else may have been at play here. 

********