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U.S. Dollar Strength Intense But Nothing New In The Last 5 Years

By Kitco News
Tuesday October 14, 2014 10:26 AM

(Kitco News) - In financial markets, the big story for 2014 has been the rise, at least during the second part of the year, of the U.S. Dollar against all majors but mostly against the euro. The rally first started with the U.S. yield rally this summer and continued as a result of awful European data as a weaker euro contributed to strength of its U.S. counterpart. The Federal Reserve’ change in tone of its monetary policy, from dovish to neutral to somewhat “hawkish” was also a major theme in currency markets.

The U.S. dollar move has been quite intense, but looking back over the last five year we will see, we have been trading around these levels on the U.S. Dollar Index and on the EUR/USD almost 10 times since 2009.

A chart of EUR/USD over the last 14 years. Click to enlarge

So what did happen to the U.S. dollar since Kitco Media arrived in town back in 2009? Let’s see!  Since the U.S. dollar is heavily compromised of the Euro (57% versus the next in line at 13.6%), I have chosen to focus on the EUR/USD pair. 

2009 (EUR/USD opened at 1.4000, closed at 1.4400)

If you only look at where the EUR/USD opened and closed the year, we had a four-figure rally from 1.4000 to 1.4400. Not much volatility right? Wrong. We had a 26.5 figure range! During that year, EUR/USD went from a low of 1.2480 to a high of 1.5140. 2009 was the year where printing money was in fashion ($787b stimulus package, FED’s buying of $1.2 trillion of debt). Fear of inflation was rampant… 5 years later, we are still scared of inflation, except in Europe, they are now scared of deflation. Funny what money printing can accomplish?

2010 (EUR/USD opened at 1.4400, closed at 1.3400)

This was another wild ride year for the EUR/USD with a range of 24 figures, following exactly the same pattern as the previous year (early losses than rally). Austerity and sovereign debt made the headlines that year. Greece and Ireland got bailed out and yields of government bonds for Spain, Italy and Portugal all went nuts, to the point where other major country bailouts were discussed. It didn’t happen (Italy almost did the year after), but the fear was palpable. This brought in the word of the year: Austerity. This was not very popular among the general population especially in Europe where violent protests and demonstrations became a daily event.   

2011 (EUR/USD opened at 1.3400, closed at 1.3000)

Once again volatility was high with a wide range inside the year but there was a different pattern. The EUR/USD initially moved up to 1.4900 before losing it all and closing pretty close to opening rate at the start of the year. Remember how exciting 2011 was especially during the debt ceiling debate in the US and being actually confronted to a US default and Government shutdown? This was too much for Rating agency S&P and the USA was actually downgraded from their AAA rating to AA+. Interestingly though, it seemed that the little traders didn’t cared about that news. I guess the agency’s pre-2007/2008 tripe A subprime debacle somewhat affected their credibility.

2012 (EUR/USD opened at 1.3000, closed at 1.3200)

We saw quieter volatility during this year with a tight Open/Close and tight overall range. QE3 was the main story. Some liked it (stock traders and the 1%…) but a lot of criticism came around. Parallels were made to Japan’s “lost decade” (safe to say “lost decades” now) were starting to pop up but apparently things are different this time around. It’s weird how every time we’re in trouble it’s different from the time before when it really isn’t.   

2013 (EUR/USD opened at 1.3200, closed at 1.3800)

What almost happened in 2011 actually happened in 2013: The US Government shutdown. US defaulting on international debt became an actual possibility before Congress decided to end the folly.  


A closer look at EUR/USD over the last 5 years. Click to enlarge

Lots of major events happened during the last five years. The world is a different place economically and politically. But, when you look at prices only, the levels we have seen lately aren’t new. We have been at these prices many times and really the market has been trading in a range…a big range but still a trendless market. 

It is also interesting to see that out of 2009 through 2013, we only had 2010 where the Open/Close for the year was 10 figures. For the rest of the years, regardless of what happened in the world, we ended the year pretty close to where we started and this is what startled me the most.   

By Hugo Murphy, trader at Kitco.com hmurphy@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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