What's in store for major currencies if the Dollar strengthens?

The Dollar grows stronger everyday as the date approaches for the Federal Reserve to finally lift rates in the US in nearly a decade. We've see the profound effect not only on the expectations around the date when we will see the rate rise but also the strengthened nature of the dollar shaking major economies in emerging markets as well as handing a firm punch in the face of commodity prices.

I thought it would be the right time to assess the US dollar versus other major currencies to map out where these developments could possibly take us. I don't think a stronger dollar is a good indication of prospective economic activity globally and we could see currencies playing a big role in determining the global growth going forward. 

USDCAD

The US Dollar Canadian Dollar currency pair is what you would consider a good indicator of the direction commodities could be headed to in the months to come. Long term charts assist us in seeing the whole picture as it has come to be and holds a greater priority to shorter timeframes on account of reliability, when these technical patterns break they show a deeper shift in sentiment.

We see on the chart below that the price has broken a long term downtrend and subsequently rallied where it has lobbied itself above a resistance zone which seems to confirm a cup and handle formation. The price has since retested that zone and looks as if it is ready to start it's ascent once more.

On the long term basis this paints a grim picture for commodities in the next 2-3 years. If you thought the slump we've so far witnessed was enough to make valuations in commodity producers look cheap, think again as the dollar plays a crucial role in the trade of these important resources.

Commodities are traded in dollars so a stronger dollar makes it more expensive added to the fact that China has yet to confirm a bottoming out of it's economic slump and you have a recipe for disaster.   

$USDCAD 1.28-1.30 critical support. Failure to reverse below 1.28-1.30 will result in further weakness in $CAD #FX pic.twitter.com/QUYTN8BrF1

— Aksel Kibar, CMT (@TechCharts) November 6, 2015

EURUSD

When Mario Draghi announced a new round of QE stimulus earlier this year it provided a much needed boost for the Eurozone that's been suffering from seismic deflationary pressure over years now with some expecting them to head the same way as Japan.

The monetary injection was all what was needed to weaken the Euro further and please policymaker who hope to see some economic recovery especially in the exports area. However given the political turmoil currently facing the region, the currency hasn't staged the bounce many thought would materialize.

Draghi has stated in a more recent ECB meeting that he is ready and willing to stimulate the Euro economy if needs be which did excite the markets and possibly why we've seen a resurgence in global equities. It's for this reason that  the Euro will depreciate further and with the Fed ready to hike it al but provides a double whammy effect on prices.  

The real risk here is although this might be positive for the short term the EU cannot sustainably keep rates on hold and print money, there needs to be a rethink of how the economic operates especially when they grappling with an aging population and many of those relying on the state to provide grants.

#currencies #forex #eurusd $EURUSD Probable long term Euro Dollar scenario, confirms a LT bearish #crudeoil trend? pic.twitter.com/wTlcgkYsuC

— Moise Levi (@moiselevi) August 19, 2015