What`s up with Euro, Dollar and Gold?

Gold is still in a bearish market and the precious metal is declining and hit a 3,5 month low today. At the same time we can see a strong rally in the U.S dollar, hitting a twelve years high. Gold is trading at $1,147,70.

The U.S dollar is soaring and the Euro is plummeting. When the U.S dollar hits a new twelve years high, the Euro hits a twelve-year low. Some analysts are betting that the euro can sink to the same level as the U.S dollar.

Stack of $100 bills

The euro started to fall sharply last summer when the ECB president Mario Draghi laid the groundwork for QE, but the euro has fallen even sharper since the €60 billion-a-month bond-buying programme started on monday this week.

The U.S dollar started the rally at the same time last summer, boosted by strong hints from the Fed that it could start to raise interest rates later this year. EUR/USD is trading at $1,0545 on Wednesday, and that is below $1,06 for the first time since April 2003.

Mario Draghi said cheaper borrowing costs for some eurozone countries suggested that QE – which tends to drive up the value of bonds, and thus depress their yields (which moves in the opposite direction), was already having an effect.

Some analysts have questioned whether the ECB will be able to find sufficient bonds to buy to hit its monthly target. German 10-year bond yields hit a record low of 0,2% on Wednesday. Other Eurozone countries bond yields are also at or near record lows.

The German bond yields at record lows is mainly due to safe-heaven demand from investors, while the other European country bond yields falling is due to the ECB`s plans to buy sovereign bonds as part of its QE of it monetary policy.

A strong dollar is good for the U.S consumers. They can buy cheap things from Europe and Asia, and at the same they have low gas prices. It sounds like party to me. One dollar now buys almost 16 pesos.

The Turkish lira, the Mexican peso, hit an all-time low to the dollar. The Indonesia rupiah hit a 17-year low of 13,1 to the dollar. The Norwegian krone hit a 13-year low and the Brazilian real just hit a 10-year low to the dollar.

The broad Dollar Index (DXY) has now wopped by 23 percent since last summer. That`s the most aggressive rise in more than 34 years! Some of the indicators is more overbought now than at any point in modern history.

DXY 25 yr

(Picture: DXY Index)

As you can see from the chart in RSI, it is overbought. More than we were at the depths of the 2008 credit crisis. That crises caused an immense flight to safety rally in the buck, along with the biggest rally in U.S Treasury prices ever. DXY`s previous close is 99,68.

The dollar rally is now broadly pressuring emerging markets, hurting commodity prices, and undermining the profits of multinational U.S corporations. As the dollar increase, commodities and emerging markets cry.

The problem is that the dollar rally is getting out of control!


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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Filed under Commodities, Emerging markets, Quantitative Easing

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