How to Use the Golden Cross and Death Cross Stock Chart Patterns
Thunderclouds are gathering over the U.S. dollar, threatening its two-year rally in the foreign exchange market, limiting corporate profits and angering President Donald Trump.
Dollar bulls in the futures markets are at their lowest level in more than a year and a half, according to the most recent data from the Commodity Futures Trading Commission..
Analysts at Bank of America Merrill Lynch say the dollar hit the so-called «Death cross» (Death Cross) on the last day of 2019. A bearish technical formation occurs when the 50-day moving average crosses the 200-day moving average. This was followed by a period of dollar depreciation in seven out of eight cases since 1980, according to a recent report by the bank..
Reducing anxiety over global trade and Brexit is fueling risk appetite for investors by driving them out of safe haven assets like the dollar, notes Mark McCormick, head of global currency strategy at TD Securities..
«The global economy looks like it is recovering, he said. – Reducing uncertainty is likely to allow investors to take risks … which they did not want to take before».
Because of the dollar’s central role in the global financial system, determining its path is important for corporations and investors. Over the past few years, the US currency has been affected by a number of factors that, according to analysts, could lower its quotes, including a sharp turnaround from the Federal Reserve and concerns about a slowdown in US growth..
UBS, Schroders and Société Générale are among the banks forecasting a drop in the dollar this year. Jeffrey Gundlach of DoubleLine Capital also told investors that the dollar’s next big move would be downward..
The dollar’s extended stay near the top of its trading range has been reflected in the balance sheets of multinationals such as Procter.&Gamble Co and Whirlpool Corp, making it less profitable for them to convert their foreign earnings into dollars.
Trump has complained about the strength of the dollar, in part because it makes American products less competitive overseas. The index, which measures the dollar against the currencies of the US’s largest trading partners, is near an all-time high.
Momchil Poyarliev, head of currencies at BNP Asset Management, believes that this trend will soon change. He is betting the dollar will fall against the euro, Japanese yen and Australian dollar as growth accelerates in these countries and their central banks raise interest rates while the Federal Reserve keeps them stable. This should narrow the yield gap that supports the US currency..
Several central banks already appear to be moving to a less lenient position. The Reserve Bank of New Zealand surprised investors when it left rates unchanged at its November meeting, while Sweden’s central bank was the first to raise rates to zero from negative territory last month..
The European Central Bank, for its part, made it clear that it is currently cutting rates.
Richard Benson, co-director of investments at Millennium Global Investments in London, prefers a variety of emerging market currencies, including the Mexican peso and the Indian rupee. He expects emerging market currencies to rise against the dollar as the global economy grows..
Others believe that any weakness in the dollar will be short-lived..
Lee Ferridge, head of North American asset management strategy at State Street Global Markets in Boston, believes the yield spread between the US and other developed economies will not be wide enough to dampen the dollar’s appeal..
In fact, a sharp slowdown in US growth is likely to push nervous investors back to the dollar, he said..