Tell me who is good for the dollar and I’ll tell you who wins the election
The charts often tell a story the news reporters miss.
At the moment, four key charts are pointing to US dollar strength.
The Dollar Index broke above the 200-day moving average and the 38.2% retracement of the Aug-Sept fall yesterday.
EUR/USD broke below the 200-day moving average and the October low yesterday.
USD/JPY has been in a steady uptrend and touched the highest level since April on Friday. The pair has pulled back this week but there are a number of reasons to expect strength.
Gold took a beating on Friday, falling $40 to the lowest since Sept 1. Gold is priced in US dollars, so USD strength implies gold weakness. The 61.8% retracement of the August breakout at $1670 is a crucial support level. A break points to $1600.
Analysts lean toward Romney as a better candidate for the US dollar but there are other possibilities as well.
First, any clear outcome would likely lead to a resolution of the fiscal cliff, which I expect will unleash a wave of investment that reflects the recent better tone of US data.
Alternatively, the US dollar strength could be pointing to a disputed election result that sparks a wave of risk aversion (although gold would probably rally in that scenario).