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$ starts to extend

There have been two extension signals in the US$ in the last two days, both indicating that the current US$ strength is overdone:

Kiwi & Can$ extend

Due to the way the New Zealand currency is quoted, the signal in the first chart is a bottom extension but it means the same as the second chart - the US$ has gained strength (or these two other $s have weakened) and both pairs are now extended.

This probably says more about the individual circumstances in New Zealand and Canada than it does about the general state of the US$, but it may be an early warning, which is why we publish it. The situation in the $index and in the $/€ are quite different, as there has been no evidence that the $ strength is overdone in either instrument - not only are there no signals but the price movement has been largely range-bound:

$ index and $-€

Indeed in the other two most traded pairs, £/$ and $/¥ there have been recent compressions that have broken in the direction of a stronger US$. The £/$ signal led to a move that may soon be over (it has a shelf life of a few more days) but the $/¥ signal is still fresh, meaning the $ should strengthen some more.

Cable and $-Yen comps update

All this is a bit mixed but we feel that the $ strength is mostly due to the expectations that have been raised by the rhetoric of President Trump about tax cuts and the prospect of repatriating the enormous offshore profits stashed by American firms. Both are still prospects however and the reality may be harder to achieve.

Just as we are sceptical about the current US stock market rally (except for the Nasdaq) we are also unconvinced by the $'s strength. To summarise, we think that a bout of $ weakness is coming and we will watch for more clues as to exactly what currency to buy and when.