Is This The Dollar Breakout?

Written by John Kicklighter, Currency Strategist



August 8th, 2008 will be known for two events: the start of the 2008 Beijing Olympics and the massive, bullish breakout for the US dollar. The currency made its move across the board, taking out significant technical (and psychological) levels against most of its major counterparts and marking its biggest one-day advance on a trade-weighted basis in over five years.
Five months after testing a record low and through four months of congestive price action, fundamentals have slowly built up (though the US data hasn’t exactly been encouraging) behind an eventual rebound in the massively oversold currency. With liquidity draining for the weekend, the market now has time to contemplate: is this the true trend reversal and how will this effect my trading in the long term?



The Outlook
Today’s dollar rally easily marks a technical turning point for many of the most liquid dollar-denominated majors (see Jamie’s technicals for a full briefing on this); but the currency certainly hasn’t cleared all hurdles. Technically, while EURUSD and GBPUSD have dropped below major support at 1.5300 and 1.9400 respectively, there is still resistance for the greenback on a trade-weighted basis. A look at the Dollar Index reveals the dominate trend from the late 2005 bearish trend reversal has yet to be tested. This will no doubt require significant momentum on the dollar’s part to charge up enough strength to breach such a noteworthy level.



For the dollar to maintain its current trajectory and confirm a major trend change, the currency and economy will need to answer these issues. Regardless of the technical breaks in the majors, the dollar will need to break resistance in the trade-weighted index. For the long term, the fundamentals will need to back the dollar fully. Growth factors will grow increasingly important – specifically consumer spending and sentiment, business activity, trade and the housing market will need to show genuine evidence of a bottom. Ultimately, though, the true determinate will be interest rate expectations. Three quarter point hikes are scheduled for the coming 12 months, but such a major exchange rate event will need confirmation of just such a monetary policy change early in the forecast period. What’s more, a Fed hike would need to outpace any hawkish ambitions from other central banks.



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My opinion :



For months, I have been discussing with my fellow minded friends on the effects of the Olympics and the reversal of the world major economy - USA.



From the above article, it certainly seems that we aint the only one thinking in the direction of hope.



Definitely, everyone is anticipating an impact to the USD pairs. GOOD or BAD ?...

Just last nite at DOW, it posted a gain of 302.89 points...

Following a sharp drop in oil price, U.S stocks rose, sending the Standard & Poor's 500 Index to the largest weekly gain since April, as retailers, manufacturers and transportation companies rallied on speculation lower commodity prices will boost profits.

The fuel fall was the sharpest fall in 2 1/2yrs.

Hopefully, this fuel fall will carry on for another 2-3 weeks, I hope. That way, i will be seeing a very very active trading markets in stocks, commodities, and of cos FOREX moving the most.

I always have the FEELING that forex prices move according to NEWS...This is the pair that never fails .

FOREX/NEWS....no news no movement. Hope more good news to come up and less bad news.

Update on Forex Challenge : Guys, the market closed, i only managed to gain to 12k USD last nite from a re-start at 10K USD.

Anyhow, I am now looking to play on demo account , if you guys wanna teach me a thing or two, DROP ME A LINE on the comments. ANYONE ANY SEX ANY RACE. THIS IS DEMOCRATIC TRADING. THIS IS FOREX !