The U.S. dollar is in decline, and that could have far-reaching implications for Wall Street, at a time when concerns about geopolitical tensions, anemic inflation, meteorological and geological phenomena, and lofty valuations in stocks and bonds seem to be reaching crescendo.
And that names just a few of the factors that are ostensibly weighing on market sentiment and taking a toll on the world’s reserve currency.
Indeed, the ICE U.S. Dollar Index, which gauges the greenback’s strength against a basket of six currencies with a heavy tilt against Europe’s euro EURUSD, +0.1081% is down 11.5% since reaching 103.21 on Jan. 3. That qualifies the currency gauge’s recent slide as a correction, which is defined as a drop of at least 10% from a recent peak.
Signs point to further weakness.
The buck, trading around its lowest level since January 2015, has stumbled beneath short- and long-term trend lines that chart watchers tend to track to determine bullish and bearish momentum in an asset. In this case, the buck is off 7.2%, compared with its 200-day moving average of 98.49, and it’s 2.6% below its 50-day moving average at 93.83.
Moreover, the index’s 50-day moving average has crossed below the asset’s 200-day moving average—a pattern that took shape around mid-May and may represent what market technicians refer to as a death cross, another decidedly bearish sign.
But what does this all mean? And why is the dollar in a slump, despite a U.S. economy that appears to be growing, albeit moderately?