Wednesday, September 10, 2008

US Dollar recovery & its consequences

The recovery in the US Dollar, which can be clearly seen from its breakout above its downtrend line (see Chart 1 below), had led to sharp correction in many commodities as well as many currencies. The most notable is the correction in Crude Oil, where it broke its uptrend line last week (as noted in my earlier post, here). In addition, we can see that EURO & Gold have weakened sharply & broke below their respective uptrend line (see Chart 2 & 3 below). After its sharp run-up in the past 2 months, US Dollar is quite over-bought & may enter into a consolidation phase.

The recent Fannie Mae & Freddie Mac bailout could also have some short-term negative impact on the US Dollar. On the medium to long-term, the re-capitalized Fannie Mae & Freddie Mac could provide additional financing to US house buyers & this could help to slow the slump in the housing market. A recovery in the housing market would be positive for the US economy & the US Dollar.

Chart 1: USD's weekly chart as at September 9, 2008 (source:

Chart 2: EURO's weekly chart as at September 9, 2008 (source:

Chart 3: Gold's daily chart as at September 9, 2008 (source:

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