It doesn’t take much to spark a reversal in an oversold market. Today, the case of the US dollar. News that the People’s Bank of China had raised its benchmark rates by 25 bp sparked a rally in the US dollar and a sell-off in just about everything else. However the seeds of a reversal in the dollar had been brewing for some time now. Sentiment had gotten very gloomy about the US dollar. In addition all the talk about QE2 has been giving traders and investors alike all the fundamental fodder they needed to push the dollar lower. Who knows how long the reversal in the dollar will last, because little has changed on the fundamental front. But traders should recognize that even in long term uptrends (and downtrends) reversals can occur with little pretext and are often strong enough to shake out weak position holders. In today’s screencast we look at the recent reversal in the US dollar.
Items mentioned in the above screencast:
The effect of China’s interest rate move on global markets. (Guardian)
Why the US dollar may be poised for a reversal. (Data Diary)
The US dollar recently found support. (StockTwits FX)
Daily chart of the PowerShares DB US Dollar Index Bullish ETF (UUP). (Finviz)