The comments below were provided by Kevin Lane of Fusion IQ.
More than ever before, the dollar will be linked to the direction of the S&P futures market in how it is able to trade. We can forget green shoots, analyst opinions and political satire and instead look to the global investment arena taking its cue from wherever the S&P futures market goes. The equity sentiment is going to reflect the ability of the dollar to rise or fall.
This is not a fair value market that is looking at forward debt-to-growth ratios, nor regional economic sustainability; this market will now go into bursts of regional equity trade, and the dollar will follow around, beholden to the overseas purchasers of US debt. There seems to be little chance of sustainable USD appreciation. We will more likely see the reversal of dollar selling, in limited form, on the days equity markets drop.
It is very clear that no other global currency is in much better condition right now, but this will not be a regional currency story; it will be a buy stocks, or buy bonds story, at least until the end of the year. At that point we will look back and wonder how the dollar got down so low without many really noticing - if, that is, equities find buyers. However, if bonds are bought instead, we will see more of the same one-day-up, one-day-down periods that have been in place through June and July.
A week and a half ago we outlined technically and fundamentally that the USD would probably break down out of a small consolidation pattern near 80.00, and it did just that in a move to 78.90. As stated above, we will see more back-and-forth trade hinged on economic speak and global influences. [PduP: Just in is also an update by Adam Hewison (INO.com) of his technical analysis of the outlook for the US dollar versus the yen, spelling further downside. Click here to access the presentation.]
Source: Kevin Lane, Fusion IQ, July 12, 2009.