The U.S. Dollar Trend is Changing Direction

The U.S. Dollar Index ( the "Dixie") is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies.

The U.S. Dollar Index finally broke out of a long downtrend that started in 1985 around 2016, but more decisively in 2022 as interest rates are rising. 

When short term interest rates rise, the dollar trends up as it becomes more attractive to investors looking for higher yield. 

When short-term interest rates fall, we can expect the dollar may fall. 

As we can see in the chart, the long term trend is up. 

But the short term trend is down: 

In fact, the dollar index printed a lower low today, and at the same time, it's about to print a "death cross". 

A death cross is when the 50 day moving average of a price trend declines below the longer term 200 day moving average. 

The dollar had been strong because the US economy is healthier than other countries and because the Federal Reserve keeps raising interest rates.

 A strong dollar is a downside risk for stocks of US companies that operate internationally, but may help stocks of companies that export products to the US.

It seems the currency market expects interest rates to stall, so we'll keep an eye on it to see how it plays out. 

Mike Shell