Forex Big Winner! The US Dollar Continues to Strengthen, Creating the Longest Consecutive Weekly Gain in Years.

Including PMI and the unexpectedly sharp decline in industrial orders in Germany, economic data from the eurozone and other regions released this week has been weak. However, US data such as the ISM non-manufacturing index indicates a robust economy. This has led to an increase in market expectations of the Federal Reserve maintaining high interest rates, making the US dollar the recent winner in the foreign exchange market.

As of Thursday this week, the ICE US Dollar Index (DXY), which tracks the exchange rate of the US dollar against six major currencies, has reached a new high for nearly half a year for three consecutive days. The Bloomberg Dollar Spot Index, which tracks the US dollar against ten other currencies, has also risen for three consecutive days, with a gain of nearly 1% over the same period.

Both major US dollar-related indices are expected to accumulate gains for the eighth consecutive week. The ICE US Dollar Index is set to achieve the longest continuous weekly gain in nine years, while the Bloomberg Dollar Spot Index is set to achieve the longest continuous gain since its introduction in January 2005.

Kit Juckes, a strategist at Societe Generale, commented that the US economy is currently very resilient, while European data is very weak. This is one factor contributing to the excessive strength of the US dollar.

Matthew Hornbach, Head of Global Macro Strategy at Morgan Stanley, also mentioned this difference, stating that global economic growth is definitely weakening, especially in Europe, while the US economy seems to be showing resilience. This interest rate differential situation is indeed favorable for the US dollar.

In addition to economic data, several members of the European Central Bank's Governing Council, including Klaas Knot, President of the Dutch Central Bank, made hawkish comments this week, calling for further rate hikes sooner rather than later. This has also weighed on the euro. The weakening of the euro has further strengthened the US dollar index.

Edward Moya, Senior Market Analyst at OANDA Corporation, mentioned recent warnings from Japanese officials regarding intervention in the foreign exchange market.

On Wednesday, Masato Kanda, Vice Minister of Finance for International Affairs in Japan, stated that the Japanese government will not rule out any options to combat speculative trading in the foreign exchange market. Some media outlets believe that Kanda issued the strongest warning against selling the yen since mid-August.

During Wednesday's session, the yen rose against the US dollar after Kanda's speech, but then fell again during the US stock market session. In early Asian trading on Thursday, the yen hit a new low for the third consecutive day since early November last year, but then rebounded.

Moya believes that efforts like Kanda's warning have had little effect. He said that foreign exchange comments have little value if there is no convincing data or market conditions to support decisive and meaningful action.

Macro strategist Simon White provided a technical analysis, stating that technical indicators such as RSI and Bollinger Bands show that the US dollar is experiencing a short-term tactical overbought condition. This coincides with signs of long-term weakness in the US dollar, indicating that the recent rise in the US dollar will soon come to an end.

White pointed out that long-term indicators indicate weakness in the US dollar, which will strengthen resistance to further upward movement. The chart below shows that the US dollar medium-term leading indicator based on long-term interest rate expectations still suggests a decline in the US dollar. White believes that the most important thing is that the US government's fiscal deficit continues to expand, and the ratio of the deficit to GDP has exceeded that of any other time outside of war and economic recession. If the deficit decreases, it usually leads to a softening of the US dollar for about 18 to 24 months.

Another point he mentioned is that other regions around the world are slowly moving away from the US dollar. This does not mean that the dominance of the US dollar will come to an end soon, but the decreasing importance of the US dollar will create a bearish sentiment for the dollar over the years.

White also mentioned that the Commitments of Traders (COT) report for the US futures market shows that speculators' positions in the pound and the euro are still long, indicating that although the US dollar is rising, the dollar bears have not given up and are not in a weak position.

The chart below shows that actual commodity prices tend to rebound after being suppressed by a weak US dollar, indicating that the depreciation of the US dollar is not having the same stimulating effect as before, because the marginal utility of the US dollar is declining.