When Will the US Dollar Rebound?

The greenback has been steadily weakening and is at its lowest in nearly a year. The perception if not the reality of chaos in the White House is not helping as we noted in our article about political chaos hurting the dollar.

The fundamentals that drive the strength of a currency include the political and monetary policy of a country. They include the strength of the economy, balance of payments and interest rates. The US economy has climbed out of the Great Recession and unemployment is at historic lows. The stock market just keeps going up. But the dollar is headed the other way and is at an 11 month low. A major factor in the lowering dollar is perception of the direction of the US government and in fact the competence of its leaders.

Is there are bottom to dollar weakness? When will the dollar rebound? Using technical analysis as a guide Forex Live writes that the US dollar is reaching the 2017 bear target so the worst is over.

With taking into account the extreme long positioning in the EUR this means that the worst of the 2017 USD bear cycle (EUR bull cycle) is behind us, which from a price perspective implies that we can see a final undershooting towards 90/88 but perspective wise we would see these levels as a good basis for buying the USD and position for a new bull cycle into 2018.

Are there fundamentals that support this opinion? After all the investigations into Russian meddling in the US election and whether or not Trump’s campaign was complicit are continuing. And the North Korean nuclear standoff is heating up and could end in violence. Nevertheless, the stock market keeps going up and unemployment is at historic lows. A weaker dollar helps US exports as well. At some point, simply based on a weaker dollar, exports and the economy will strengthen enough to help turn the dollar around. The question is when the dollar will rebound.

A Resolution to the North Korean Mess

The threat of war is not helping the dollar. The Korean War is not over and could still heat up. It will require a deal of some sort or baring that it will require successful military intervention to resolve this situation and bring stability back to the Korean Peninsula and the dollar. This situation may be resolved for better or for worse fairly soon.

The Russians, the Election and Trump

This will takes months or a year or more as hearing drag out and the special prosecutor digs up evidence. Meanwhile it puts a damper on enthusiasm for the greenback.

A Dysfunctional Government

The Trump presidency started with a lot of hype. With a Republican controlled congress many believed that his agenda of lower taxes, infrastructure spending, deregulation and repatriation of offshore corporate cash would proceed quickly. Not only is this not the case but it appears to the world that the Republicans are incapable of governing. This is the most damning thing that drives the value of the dollar down and will keep it there until competency occurs in Washington and is seen to occur by the world.