A Rumbling Below the Surface for US Dollar?

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Today is all about Fed Chair Powell’s Jackson Hole Speech at 10 am Eastern, but from a market perspective, we might want to keep a close watch on the reaction of the USD to what Powell says or does not say.

Why? Yesterday’s strength in the Dollar has reversed overnight into this morning’s pre-market session.

In a post to members at 15:30 yesterday, I posited the following about the USD: “The $64,000 question about Gold and the Gold Miners depends on the direction of the USD: Was the recent decline in DXY the start of a period of weakness or a completed correction?” 

Given this morning’s weakness in the DXY, strength in EUR and CNH vs. the USD (see attached charts), the Dollar’s price action, pattern formation, and momentum divergences suggest strongly that the Dollar is rolling over into a period of weakness.

In particular, the massively divergent relationship exhibited on the USD vx. Chinese Renminbi chart has my imagination in 5th gear, because it appears to be at an acute tipping point from a relentless USD upmove (a period of acute Renminbi depreciation vs. the Dollar) into a potentially powerful correction (period of weakness in the USD).

Whether the “tipping point” reflects a sudden resolution to the US-Chinese trade/tariff standoff, or the advent of some form of FX market intervention to weaken the Dollar, I don’t know. Nonetheless, the big-picture chart work is warning us that something is rumbling below the surface that could acutely impact the direction of the Dollar, and with it, tangential markets such as commodities, U.S. exporters, and precious metal miners.