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Dollar Euro update

Technicals first, then fundamental comments

After Jackson Hole, the dollar continues to follow the trajectory I outlined a couple of months ago.

The Euro is now well within my target zone for starting the short.

My prediction was that it would top out around $1.20.  But that is very close, whereas my dollar prediction has a little more room on the downside.

But zooming out on the Euro, technically, the main point about the turning point is, the expectation is for the whole upper distribution to resist…the price range that lasted from 2003-2014….VERY strong ceiling.

So anywhere in that grey box is fair game for a top.

In fact, since the Euro broke firmly above $1.18, we are replaying the 2005 range.Once price gets in an old range, it’s likely to retrace it.

If so, that takes it to $1.25 ish, which would probably sync it up with my dollar bottoming chart.

You can see how price stuck to the bottom of that range ever since the 2014 fall.  Typical range behavior.

Fundamentals

A few months back, I puzzled about the dollar fall, as the Fed was tightening, while the ECB was till printing money.

The Fed puzzled over this too.  They didn’t understand why the economy was “loosening” while they were tightening.

Because my brain is foggy and sticky sometimes, it took a while for it to sink in for me what this means.

Basically, it means that, the creation of money in the US through loans being granted, accelerated through 2017, even though the Fed was raising the benchmark rate (all the way up to 1%, wow!)

This still basically gives us the same message that all my mental gyrations concluded: the US economy is much stronger than Europe.  And that people and business really have so far believed in Trump as the business friendly president.

The Future

I have come to believe that what the Fed does with interest rates is nearly irrelevant, compared to their idea to unload $trillions in bonds on the open market.

If they follow through with this, it will do WAY more to raise effective interest rates, than their old fashioned style manipulation.

And the fact that the US economy is still loosening suggests the likelihood they will follow through is very high.

If so, they will probably begin this process before the ECB even stops printing money, let alone disgorging their balance sheet.

I think this will produce a whiplash effect.  Suddenly new loans will grind to a trickle, defaults will commence, the dollar supply will shrink, especially relative to the Euro, and the 2017 move will reverse.

That’s my 2 cents.

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