OVER the past week, we saw an attempted US dollar comeback that took it up to one- and four-month highs in Singapore dollar and Japanese yen terms, and no less than three respected research reports have warned of a higher US dollar by end-2008.
At least for the moment, however, we must confess we are not overly impressed, based on what the fundamentals and our charts are telling us.
Yes, it's true that some fairly intensive anti-inflation Fed statements have inspired a sharp climb in both the short and long end of the US Treasury yield curve.
Two-year note yields recorded their biggest one-week rise in 26 years, while the benchmark 10-year note yield clocked a fresh six-month high of almost 4.3 per cent.
Meanwhile, overnight trading saw oil spike to a fresh all-time high of almost US$140 a barrel, but that proved to be short-lived - again providing some kind of support for those who argue that the US dollar may be bottoming out at last.
In their latest insight for Q3, DBS researchers have revised their end-2008 targets for the US dollar upwards. They now see the euro fall towards US$1.49 over the next six months, and the US dollar rise further to higher levels such as S$1.40, 9,600 rupiah, 47 pesos, 34 baht and 43.5 Indian rupees.
Meanwhile, JP Morgan researchers have told us that their ADXY index of Asian currencies has fallen through an important 200-day moving average.
We are quite happy to agree that if oil prices remain high - by which we mean they remain sticky above something like US$120 a barrel - the US dollar will certainly be in good demand against the currencies of countries with weak external accounts and large oil import bills to pay.
However, that is not the same as saying that the US dollar has definitively turned higher across the board.
On the technical side, we would point out that on an indexed basis, its foray above 74 has proven short-lived, at least so far.
And, after hitting a low of US$1.5350 after the Asian close on Monday, it only took a trio of poor US data releases to lift the euro a handsome two US cents higher in Asian trading yesterday - to a US$1.5550 peak.
That sure doesn't look like definitive US dollar strength to us.
Chart-wise, too, we continue to believe that the first sign of a more serious US dollar turnaround is a high-momentum sell-off that takes the euro and the British pound below US$1.53 and US$1.93 respectively. We could add a third: 93 US cent support for the Australian dollar - especially if gold should also fall through key US$845 support.
As for clues from the Wall Street, major indices like the Dow, Nasdaq Composite and S&P 500 are (for us at least) still uncomfortably close to key support areas such as 12,000, 2,400 and 1,670 respectively.
Here's more. A good deal of the US dollar's attempted recovery over the past week has been inspired by rising expectations that the US central bank is now set to hike rates at least two - if not three - times before the year is out.
By yesterday, however, we were reading accounts of not one, not two, but three newspaper reports downplaying such rate hikes.
On Monday, we were told by research firm Forecast, a Washington Post editorial warned that Fed chief Ben Bernanke is far more worried about the negative effect that oil prices could have on growth, rather than the impact on inflation.
Then yesterday, Reuters wire reports quoted two newspaper reports that further trimmed US dollar gains in Asia.
First, the Wall Street Journal reportedly said that the Fed is likely to leave its short-term Fed funds rate unchanged at 2 per cent next week, and maybe even at their subsequent meeting in August.
Second, the on-line edition of the Financial Times reportedly suggested that there were people within the Fed who think that US rate hike expectations may now be overdone.
Not quite the stuff which inspires a serious US dollar turnaround, don't you think?
This article was first published in The Business Times on Jun 18, 2008
