US Markets

BUZZ-COMMENT-Dollar breakdown unveils new warnings of deeper slide

Credit: REUTERS/THOMAS WHITE

The dollar index's breakdown to seven-week lows has raised the risk that long-term supports may give way, foreshadowing further losses.

Oct 21 (Reuters) - The dollar index's breakdown to seven-week lows has raised the risk that long-term supports may give way, foreshadowing further losses.

In particular, it could lead to a retest of 2018's technically crucial 88.25 low.

September's 91.74 low held the 76.4% Fibo of the 2018-2020 rise from 82.25 to 102.99, near the uptrend line from 2011 and monthly cloud base, now at 92.00/1.78.

March's pandemic dollar-funding squeeze up to 102.99, which the Fed and other central banks quenched with liquidity, created a double-top near 2017's 15-year peak at 103.82.

The dollar is being sold on the likelihood of another sizeable round of pandemic relief spending.

That prospect, along with near-zero Fed policy and dovish guidance to remain accommodative until inflation overshoots their average inflation target for a substantial period is reducing the real-yield attraction of the dollar as a safe haven, especially with balance sheet expansion an option to limit rebounds in longer-term yields.

And, if the fiscal stimulus arrives and supports the recovery, it will increase the selling of dollars to buy riskier assets.

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Charthttps://tmsnrt.rs/2Tgybpj

Charthttps://tmsnrt.rs/2Tfi7nC

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)

((randolph.donney@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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