The cry that the dollar has peaked is gaining ground. We are not convinced. The macro-fundamental case remains intact. Divergence between the US and other high income countries continues, even if at a more gradual pace than the Federal Reserve expected a few months ago.
This Great Graphic of the Dollar Index, created on Bloomberg, shows that shows the broad consolidation over the past year continues to hold. The break of 95.00 today seems to point to a test on the low from last August 92.60, which is just above the 38.2% retracement of the rally from the early May 2014 low.
That area corresponds to a neckline of a double top pattern. A break of it would signal a move toward 84.00, which jives with a less common 76.4% retracement object of the rally since May 2014.
The technical tone of the euro, the largest component of Dollar Index is not as bullish as the Index is bearish. The Dollar Index has gone through last month’s low. The euro remains below last month’s high. A move above that high near $1.1375 targets $1.1500, which is the upper end of the range over the past year, with the exception of last August, when it spiked just above $1.1700.
