marctomarket.com / by Marc Chandler / August 5, 2017
The US dollar has fallen for four consecutive weeks against the euro, yen, and yuan. Its technical condition is stretched, and sentiment seems universally negative. However, the breadth of the dollar descent narrowed. The greenback snapped a five-week slide against the Canadian dollar and a three-week slide against the Antipodean currencies. We are hesitant about reading too much into counter-trend price action on summer Friday, but technical indicators suggested that the trends were more stretched that consensus narrative suggested.
Many observers talk about the unwind of the “Trump bump” to explain the dollar’s decline in recent months. There is something there, of course, but it may be exaggerated. There is something else going on that now is taken for granted. At the end of last year and through the first quarter, a significant concern was the populist-nationalist wave that saw the UK vote to leave the EU and Americans elected Trump was going to sweep through Europe.
We doubted this consensus narrative, but may not have appreciated the impact on psychology when it became clear that populist-nationalism was going to be turned back in fact. The euro gapped higher on April 24 and the Dollar Index gapped lower as Macron’s victory in the first round of the French election brought a collective sigh of relief (and euro buying). Foreign investors cut European equity exposure last year by around $100 bln, and through July may have returned around $30 bln.