Update: Monthly U.S. Dollar Overbought

This chart updates the percentage which the DXY Index is trading above its 200 Month moving average.

Rare air indeed !

This may be the 7th inning, 8th or 9th….but it’s not the top of the 1st.

Incidentally, We are days away from closing the quarter and U.S. corporate earnings will be reported soon after. A reminder to look for management commentary in their earnings call about the effect the strong U.S. Dollar is having on their results.

The strong dollar is something the United States needs to be wary of because prolonged strength is adding to the probability of sustained inflation.

Commercial and military aircraft are costing the rest of the world let alone other U.S. goods and services.

More importantly, the majority of the major commodities are priced and traded in U.S. Dollars.

Rather than the Bank of Japan intervene and spend $21 billion (which is slightly more than the $15bn in U.S. aid sent to Ukraine) to buy and support their Yen…..

and rather than wait for the U.K. government or the Bank of England to crank up rescue packages to support the British Pound…

perhaps the U.S. Treasury (Janet Yellen) should start making announcements designed to weaken their currency?

Such action may possibly help your ‘friends’ in the G-10; help your own bond market (your cost of capital) and make the world a better place.

Keep in mind that a U.S. 10 year bond yielding 3.85% in isolation isn’t a concern until you ponder that the bonds of other nations are seemingly trading a ‘better creditworthiness’ of 3%.

But then again, the market may end up fixing it all for you.

September 27, 2022

by Rob Zdravevski


Another way to look at USD strength

The Bearish USD ETF is exhibiting extremes including being at the higher quintile of historical percentages which it’s trading below its 200 week moving average.

Anecdotally, all I am hearing is about U.S. Dollar strength. Now (the financial media) are calling referring to it as “King Dollar”.

Remember when 2 years ago, they were calling the demise of the U.S. Dollar?

September 27. 2022

by Rob Zdravevski


Oracle’s earnings tells us more about currency effects

This week’s note highlighted USD currency headwind risk.

So, Oracle’s ‘currency headwind’ equated to nearly 15% of its quarter’s earnings.

No small change and it is a factual effect that the U.S. Dollar’s strength is having on American corporate earnings.

An extract from Oracle’s Q1 Fiscal 2023 earnings transcript is,

“The currency headwind this quarter was much higher than the 3% headwind that was present when we gave guidance. It was actually 6 points, even though due to rounding, it may look like 5%, and that’s a currency headwind to total revenue. It was, in fact, 6 points. And yet, we still exceeded our forecast on a reported basis, and we beat our constant currency revenue forecast by $200 million. We saw similar currency headwinds in EPS, which had an $0.08 negative effect, much worse than the $0.05 headwind present at the time of guidance in June.”

But with present USD strength being extended and stretched, in the spirit of positioning for ‘where the puck is going to be’, I’ll look for the contrarian effect to company earnings in the coming quarters.

In the meantime, well run Japanese companies should be ‘minting’ profits from their increasing competitive position of having a monumental weaker Yen.

September 15, 2022

by Rob Zdravevski


A trade for the ages….Sell USD / Buy JPY

The chart below shows the U.S. Dollar at a historically stretched moment of strength.

Such extreme percentages above its 200 week moving average coupled with weekly overbought readings also coincide with a peak in the Australian 2 year bond yield and a trough in the CRB (commodities) index, to only mention a couple.

September 14, 2022

by Rob Zdravevski


The effect of currencies on income statements

And the corporate effect of what todays earlier currencies post translates to…..

Aussie companies selling products into Europe, the UK and Japan have been seeing weaker receipts, while those selling to U.S. customers or in USD denominated products (commodities) are booking handsome profits on favourable currency differentiation.

Japanese and European assets are considered cheap for holders of Australian Dollars while Americans (and their corporations) may see Australian assets as being ‘on sale.

Expect those respective benefits to wane while these ‘extreme’ currency movements correct and consolidate.

On a side note, the almighty strength of the U.S. Dollar seems to be a surprise……

2 years ago, I wrote this note when I remember reports of the pending death of the U.S. Dollar to be palpable.

Today, there doesn’t seem to be an opposite case against the bullish prospects of the U.S. Dollar.

September 12, 2022

by Rob Zdravevski


The coming peak in USD and low in commodities

Peaks in the USD/AUD have corresponded with troughs in the CRB Index (give or take 1-3 months)

Keep in mind that the Commodity Research Bureau (CRB) Index calculates the pricing of a basket of 19 commodities with energy contracts comprising nearly 40% of the weighting.

In my recent writings and observations, the energy complex is the last holdout in the current mean reversion in commodity prices.

This and the markets are currently telling me……

1) the USD strength is closing in on a peak, while allowing for one more surge higher (read: probability that AUD sympathetically moves a little lower too)


2) I expect energy prices to have one more lower leg or wave (RBOB Gasoline has nearly completed its)

So, I am preparing for another moment where this peak and trough synchronise.

September 8, 2022

by Rob Zdravevski


Seriously long term Overbought extreme in the U.S. Dollar

Adding to last week’s post about the extreme move in the U.S. Dollar’s pendulum…….

…..the chart below reiterates moments when the U.S. Dollar Index (DXY) hits a Monthly RSI Overbought reading along with a 2.5 standard deviations above its rolling monthly mean……

but I have also added a notation to the chart showing the percentage amount that the DXY was/is trading above its 200 MONTH moving average.

The emphasis in this study is that it’s on a Monthly basis, being much longer than my usual ‘weekly’ observations. Day traders need not apply.

September 8, 2022

by Rob Zdravevski


Behold rare USD strength

It is the 4th notable time that the DXY hits a monthly Overbought RSI reading.

Monthly Overbought readings in the U.S. Dollar Index (DXY) portends a peak or at least some stifling and sideways travel for the U.S. 10 year bond yield.

Even through the rate hike mania of the early 1980’s, if you queued off the DXY peaks, the abatement in the 10 year bond yield held true.

Tip: RSI Overbought readings can stay Overbought for much longer than many expect.

August 29, 2022

by Rob Zdravevski


Currency Trade Ideas

This week and today, we are also seeing an extreme in the U.S. Dollar (DXY) Index and as a result certain currencies are exhibiting notable weakness, which I think translate into an attractive buying opportunity.

My three strategic currency ideas are;

Sell USD and Buy EUR (current price is 1.1210)
– Once the Euro’s have been bought, I’m waiting for some specific stocks prices. Some on my list include SAP and ArcelorMittal.

Sell USD and Buy JPY (current price is 115.40)
– there are some Japanese equities on my buying list.

Sell USD and Buy SEK (currently 9.1130)
– Swedish equities have already rallied and benefitted from a weaker currency. The likes of Sandvik, Atlas Copco, Swedbank and Assa Abloy. The laggard is airline, SAS. This strategy is more applicable for those need to Buy Krona for corporate and business purposes.

The GBP (versus the USD) isn’t quite there. 1.3260 could be the place to buy Sterling.

November 25, 2021
by Rob Zdravevski

The Case for Higher Equities, a Stronger USD and Weaker Commodities

The US 10’s are yielding 1.33% and the Aussie 10’s are 1.20%.

That spread (difference) between the US 10 Government Bond Yield and the Australian 10 Year equivalent is currently 0.13%.

But the figure doesn’t really matter, it’s the direction of the trend which is of greater importance.

As we see today………a rising trend (and when coupled with a break above a trend line) portends greener pastures for equity prices.

Below you will find a ‘close-up’ of a Weekly chart, highlighting the current ‘break-out’, while the 40 year chart (on a Monthly basis) illustrates a rising trend (of the spread) equating to an advancing S&P 500 (SPX), while a decline trend results in a lower or sideways travel.

A rising trend in this interest rate differential tend to also equate to a stronger US Dollar, which in turn means a weaker AUD.

Which…..also correlates to weaker commodity prices.

This is an indicator worth watching for your macro and longer term positioning.

Who would think we’d see a stronger US Dollar?

Rising yields on U.S. Treasuries will prolong the advance in the Dollar.

And rising interest rates add to debt servicing stress which can lead to Sovereign Debt pressure (there is no use calling it a crisis, until it becomes one) at which point the U.S. Dollar remains the currency of ‘last resort’.

This can lead to more buying of the U.S. Dollar.

See how this scenario can develop?

August 11, 2021

by Rob Zdravevski


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