The U.S. economy is in an abnormal position. “We have had four quarters of sub- 3% growth, with an average of 2.1%, if you include the first quarter of 2007,” observes Joseph Trevisani, chief market analyst for FX Solutions LLC. “Anytime there has been sub-3% growth for five quarters, the Fed has cut rates; every time.”
Trevisani says the U.S. economy hasn’t collapsed because our current 4.5% unemployment rate has supported consumer confidence despite the weak 2.1% growth rate. He notes a slew of contradictory statistics: whereas a strong jobs market could engender wage inflation, inflation is declining, and the Institute for Supply Management figures are strong but retail sales are down. Based on that, he assumes that the Fed funds rate is on hold until the end of the third quarter. Trevisani also says that dollar shorts are at high levels. “I have always viewed those figures as a counter trend. The USD is liable to reverse,” he says. In June, he expects the U.S. Dollar Index to trade between 83 and 84.5, and return to 90 by the end of the year.
The U.S. Dollar Index bounced off a triple bottom at 8110 in late April and early May, observes Robert Kozak, currency analyst at Alaron. “If it can get over the 40-day moving average of 82.19, 83.00 is the next target.”