The movement in the Kiwi of late has led me to take a closer look at the USD index. I cannot help but think that the movement in the Kiwi is analogous to the madness in the financial sector where crap is being bought up as part of a massive short squeeze, with some buyers no doubt thinking they are snapping up a bargain.
Markets can certainly stay irrational longer then those trading can stay solvent. Anyhow looking at the USD index I feel that it has undergone a very healthy correction and although there may be a touch more to come, it could well be time to think about buying some US dollars again! In my view equities are due a correction and for what it is worth I am not in the V shaped recovery camp. I would like to point readers to the following which sums up my views well:
Now take a look at the above chart of the USD index, it has retraced close to 50% of the initial recovery and looks to be in a decent position to at least begin a period of consolidation. Although I am not a believer in armageddon, as per my prior posts, I do not think we are going back to the glory days that were driven by excess leverage either. The US consumer is fertig and thus in time the US current account will repair itself. Isn't this the main reason that the USD was sold off. It was at the center of most arguements that I can recall.
As an example, the movement seen in GBPUSD which I will follow up with in a post, looks set to exhaust itself, and I would recommend going short soon. This is just one example of currencies that have gone a little too far a tad too soon versus the USD, a bit like the S&P500. Who knows, maybe the inverted head and shoulders may work this time!
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