Will the U.S. Dollar Ever Rebound?

One of the most difficult questions to answer is when the U.S. dollar could rebound. 

On the heels of President Trump’s strong dollar comments, lower inflation, failure to repeal Obama Care, and a very real possibility of no more rate hikes in 2017, no one had much of an answer for quite some time.

But given stronger economic data in August 2017, some analysts began to forecast it could come sooner rather than later, as markets began to price in higher chances of a late-year interest rate hike from the Federal Reserve. 

Not only was GDP improving on the heels of stronger consumer spending, corporate earnings were better than expected.  Even employment began to significantly improve.  In fact, employers added another 209,000 jobs in July, following a gain of 231,000 for June, according to the U.S. Labor Department. 

July 2017 numbers were even better than estimates falling for 183,000.

Such renewed employer optimism sent the participation rate from 62.8% from 62.9%, as the number of workers out of the labor force fell by 156,000 to 94.65 million.  Better still, the number of employed Americans also hit a new high of 153.5 million, pushing the employment to population ratio to an eight year high of 60.2%.

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No wonder the eight-year bull market is still alive and well.

The Federal Reserve has been so impressed with jobs growth, it may press ahead with rate hikes and balance sheet normalization, noted CNBC. 

In short, there are plenty of fundamental arguments for dollar strength.

Even technical pivot points were telling us a rally was likely in August 2017.  At first glance, this is one of the most ugly charts we’ve ever seen.  But on closer look, there was opportunity after the fall from 104.  Notice four things here.

One, the U.S. dollar now sits at solid double-bottom support at 92, last tested in April 2016.  Two, relative strength (RSI) is deep in oversold territory under its 30-line.  Each time it even tested that line historically, the dollar has bounced.

Three, the last three times MACD got this low, the dollar has rallied.   That happened in mid-2015, mid-2016, and it’s happening again in mid-20176.  Four, Williams’ %R was at its 80-line.  Up to 80% of the time when Williams’ gets this low, the dollar begins to pivot and move in the other direction.

Granted, it’s not science here.  Nothing is written in stone with the dollar.  But in August 2017, chances were good we saw the bottom.

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