U.S. Dollar At A Crossroads

Technically speaking, I believe that the U.S. dollar (Dollar Index – DXC) is in the process of moving higher as seen in the chart below.

Given that EUR/USD has been the most highly correlated pair with DXC in the last few days (it normally is anyways), I expect EUR/USD to fall lower towards 1.5404 and 1.5275 in the days ahead.

However, I found these comments from Deutsche Bank FX today rather interesting as it realtes to all asset markets and the U.S. economy in general.

“The ‘strong dollar policy’ has been empty rhetoric
during the George W. Bush years. Indeed, under no other presidency
has the US-currency lost more of its external value despite having an
illustrious string of Treasury Secretaries to utter this hollow phrase.
Some US politicians had talked about a ‘competitive dollar’ some
years ago. The current levels must represent the kind of value that
they had in mind because US export performance has been the one
redeeming feature of recent data releases. But now the Fed has
shown its hand. In a surprise move, Ben Bernanke talked about
monitoring FX developments and sent the euro skidding sharply lower.
We suspect that Bernanke’s comments, like those of other Fed
governors of late, is motivated by concern about rising US bond
yields. Bail-outs, whether for Bear Stearns or for US homeowners,
cost money. Tax hikes are not feasible; rebates are the order of the
day. So the US must borrow money – principally from abroad. The
latest Treasury auction did not go too well and overseas participation
was low. Ten-year yields might have topped 4 percent but this is not
going to attract foreigners if the dollar is in free fall. These high yields
are also problematic for borrowers. How can one hope to pick a
bottom for the housing market (still one of the main downside risks to
growth according to the Fed chief) if mortgage rates are on the rise?”