The ongoing tug of war between the foreign currencies, gold and the dollar is well known. It’s a repeat performance as repetitive as a soap opera. If the dollar is up, the foreign currencies are down and vice versa. If the dollar is down, gold is up. Or so it seems.
So, when the U.S. Dollar made a new low in March at 79.375, the yen, swiss and euro all made new highs. The yen reached 98.86, the swiss 115.03 and the euro 139.66. And gold made a high at 1392.20 a couple days later.
Something different is occurring
The dollar finally made a new low at 79.090 today, confirming another wave down on the daily chart. So one would assume the currencies most sensitive to the dollar, the yen (more recently), swiss and euro would respond accordingly as they did in March and take out the March highs. But they did not. So when the dollar took out its March low today and sold off to 79.090, the yen only reached 98.56, the swiss 114.71 and the eurofx 139.50, failing to take out their March highs. And gold? Technically shouldn’t it have been taking out the March high? Instead it isn’t even near the lower April high rally and closed lower today.
The swiss and euro made a major low in July 2012. The dollar made a high, but not a major one. Since then the swiss and eurofx have made a steady climb upward. So one would assume the dollar would make a steady decline. It has but it has not. It made another interim high in July 2013 as the others continued in an uptrend. And when the dollar did sell off, each time it persisted in holding around the 79.000 level as the other currencies, long term, kept rallying. Technically the dollar should not have done that while the others kept rallying.
And even though gold made a low earlier in 2012, it has far from made a “steady climb upward” like the foreign currencies. Gold failed and has had a “steady climb downward” and is still struggling.
So what does all this mean? Does it suggest that the dollar is being contained or controlled? Will this selloff abruptly stop or will it finally follow through? And if it does follow through, what are the implications to the other markets? And why hasn’t gold and the foreign currencies responded? In short, a lot of market behavior still remains suspect. So who is going to win out in this battle?
Time will tell but an important realignment seems to be occurring.