Usman Salis
⬤ The US Dollar Index took a hit, dropping almost 1% in the latest session as bearish signals piled up across long-term technical indicators. The dollar's looking at some rough times ahead over the next decade, at least that's what the valuation and technical charts are suggesting right now.
⬤ Here's the thing about fundamentals - the greenback's trading about 25% higher than what purchasing power parity estimates say it should be worth, meaning it's gotten pretty expensive in relative terms. On the technical side, things aren't looking much better. The index just broke through a 14-year support level that had held firm since 2011, and it's now sitting below both the two-year and seven-year moving averages. That's not the kind of setup bulls want to see.
⬤ Momentum's also telling a bearish story. The monthly MACD indicator's turned negative, and the DXY's bouncing around in the low 100 area while staying beneath those key trend levels. When asked about the outlook, analysts noted that "the dollar is at a crucial decision point" as it tests these historical support zones.
⬤ If this dollar bear market plays out the way some analysts expect, commodities and emerging market equities could be the real winners here. It's one of those classic currency cycles where a weakening dollar tends to lift assets priced in dollars and boost returns for international investors looking at developing markets.
Usman Salis
