Most Important Currency Chart

This is the broad trade weighted U.S. dollar index. It includes, importantly, currencies such as the Chinese yuan. The index made a short-term high on December 14, 2018. The chart looks similar to the U.S. Dollar Index (DXY) over this time frame, with one difference: it made a higher high in 2018. DXY still has not exceeded its 2017 high and it was still 5 percent off the high at its 2018 peak.
Money has moved into emerging markets on the expectation that a repeat of 2016-2017 is underway. The post-election spike in USD was a temporary move in the midst of a broader rally in emerging markets and commodities. Tthese investors are betting USD has peaked, at least temporarily, and another rally in emerging markets and commodities is underway. They may even believe this is the big one and the U.S. dollar had made its ultimate peak for this bull cycle, in which case this index will break the lower trendline and keep falling all the way through 100.

A longer-term look at the chart shows why dollar "bulls" aren't throwing in the towel. The index was 126.16 on February 4 (it will be higher at the next update), a 2.5 percent move away from taking out the December high. It is also only 3.3 percent away from taking the all-time high of 130.21 set on February 27, 2002.
The two key components are the euro, which is by far the largest developed market currency, and the Chinese yuan, king of the emerging markets. For the U.S. dollar broad trade weighted index to break out or break down, both the euro and yuan will confirm it.
I remain "bullish" on the dollar. The bounce in the yuan and EM currencies was a relief rally with some possible political adjustment of the yuan ahead of major trade negotiations with the United States. The European and Chinese economies remain weak. Fiscal or monetary intervention is increasingly likely. Most importantly for the market narrative, the Fed is still tightening. If Europe and China ease and that in turn boosts global growth, the Federal Reserve will likely resume tightening. The divergence in monetary policy could power another bullish leg for USD. Finally, I still believe the euro is politically unstable and the final stage of this economic cycle will be deflationary/dollar bullish.

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