Considering the 125 basis point cuts to the Fed funds and discount window rates, negative job growth, a paltry 0.6% fourth quarter gross domestic product, and sub-50 services and regular ISM releases, things looked grim for the U.S. dollar index. “That should have just trashed the dollar,” says Joe Trevisani, chief currency analyst for FX Solutions. “It didn’t,” and for the past two weeks, the market has not wanted to buy the euro or sell the dollar, meaning that the bottom is likely in. “The market was looking for a trigger,” he says, adding that the dollar’s revival is based on a slow build, rather than a stop run, indicating a change in the trend. He says the May U.S. dollar index futures will trade up to 77.50, with support at 75.00.
The housing crisis and resulting negative wealth affects on consumer spending could have spelled doom for the dollar, says Andrew Wilkinson, market analyst for Interactive Brokers. “Such postulating is old school, now that the growth vs. yield debate has taken center stage,” he says, noting the yield gap between the dollar and euro has gone to minus from plus since August, when the Fed started cutting rates. “It’s more weakness in the euro than strength in the dollar, but 78 looks very achievable,” he says, adding that if the bottom is in, by midyear the U.S. dollar index should be back to 81.
