Morgan Stanley Chart Of The Week: Is The USD Oversold?
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The Fed’s broad trade weighted USD has declined over 4.5% from its peak on January 20, so we have two questions: whether the USD is now oversold against certain currencies and whether we want to short the USD, which currencies have lagged the recent move. Below we look at a few technical indicators across a spectrum of G10 and EM currencies.
Fed’s Broad USD Index: The USD is currently trading below its 50, 100 and 200 day moving averages. The current level around 119.40 is still 1.2% away from the 15-October-2015 low and 5.8% above the 15-May- 2015 low. In addition, the 61.8% retracement of the rally since May takes you to exactly to this October low.For this reason we expect only a small further decline in the USD.
Fed’s Broad USD Index: Longer term, the momentum in the USD means that it still trades far above the 100 and 200 week averages. More interestingly, the USD has fallen to its 50 week average. A similar constellation occurred in 1998-1999, which was followed by a further 13% appreciation in the USD, up to the peak of 130 in 2002.
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