Is There More Downside for the U.S. Dollar?

The U.S. dollar has been under siege. In this year alone, the U.S. dollar has lost approximately 9% since the highs reached at the end of 2016. Since then, the dollar index has lost a lot of ground, a little over 2% this month alone. It is this recent dollar weakness that has propped up pricing in both gold and silver.

In his daily commentary for Kitco News, Jim Wyckoff said, “A main bullish input for the precious metals markets has been a seriously eroding U.S. dollar index. The dollar bears have the solid overall near-term technical advantage amid a price downtrend that has been in place all year long.”

So, the real question is how low can the dollar go, or in other words, is there more downside potential? Considering that the U.S. dollar, for the better part of 2012 to July 2014, was trading at a range of about 78 on the low side and 84 on the high side, technically speaking the U.S. dollar could go considerably lower.

In July 2014, the dollar index was trading at 80. By the beginning of 2015, the U.S. dollar index had risen to 100. Throughout the year of 2015 and into the middle of 2016, the dollar index remained range-bound, trading between 92 on the low side and 100 on the high side. From mid-July of 2016 through the end of that year, the dollar index had one final spurt taking it to 104, the highest value that the dollar index has exhibited since 2002.

The dollar strength shown at the conclusion of last year was to be short-lived. Since the end of last year, the dollar has been in a nosedive and losing considerable value for the last six consecutive months.

Trump and the Dollar

In a podcast interview yesterday with Bloomberg News, Steen Jakobsen, CIO at Saxo Bank, said that the dollar would follow Trump down. “The more hits the Trump administration takes, the weaker the dollar will become.” He also believes that market participants are underestimating the level of slowdown in China and that Asia will struggle to cope with a stronger dollar.

If Jakobsen is correct and the dollar is currently tied to the success or lack of success of the current administration, we could experience much more volatile price swings in the dollar index as this administration struggles to implement campaign promises and pledges. Whether this administration will gain some footing and begin to implement their agenda is unknown. However, up until this point, the administration has been struggling to initiate any of the changes they have been working to achieve.

Wishing you as always, good trading,