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Posted by on Jun 4, 2015 in Market Insight

Currency Market Violence

Currency Market Violence

Dennis Gartman has been directly involved in the capital markets since 1974 and has been publishing his daily commentary, The Gartman Letter, since 1987. Mr. Gartman is a strategic partner with the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN) and lends his institutional insight to educate advisors and investors about trading gold in different currency terms.

The US dollar has come under virtual assault since Tuesday, falling violently in many instances while falling only materially in others, as it has lost ground relative to every other currency we mark in our morning commentary and that is a very, very rare occurrence indeed. In fact, we cannot recall it having happened before, although we cannot be certain of that fact for we’ve not the computer scanning capabilities here at TGL to prove that statement. Even if there have been one or two or even ten such instances in the past, the point here is that this is a rare occurrence indeed. Further, not only has the dollar fallen relative to all other currencies it has done so, as we’ve said, violently, having moved 2.2 Euros over the course of twenty four hours, or just over 2.0%. In the realm of forex dealing, this is several weeks’ worth of movement; it has happened in twenty four hours.

Why? Because the newest member of the Board of Governors of the Federal Reserve Bank, Dr. Lael Brainard, gave a speech Tuesday to the Center for Strategic and International Studies in Washington, D.C. and focused a good deal of her attention upon the dollar, its recent strength and the implications of that strength to the US economy and to monetary policy.

Before we begin, we need to remember that Dr. Brainard came to the FOMC from Treasury where she had been the US Under Secretary for International Affairs for nearly two and one half years. This position has always been one of very real importance. It is the focal point of Administration policies on the US dollar and Dr. Brainard has brought that focus to her position at the Fed. We must needs remember that the dollar is Treasury’s domain. Technically the Fed is to have little to say about the dollar and in the past the Fed’s spokes people have refrained from commenting upon the dollar, leaving that wholly under the aegis of Treasury. Brainard has now trumped that tradition.

Turning to gold…in US dollar terms the monthly chart is making a visit into “The Box”.  That is the area that marks the 50-62% retracement area with $1185 or so marking the top of the Box and with $1000 as the bottom.  Retracements happen and typically the Box will identify a support area during a retracement area of a major move like we’ve seen in gold’s bull run since 2001.  We will be watching this move very closely over the next several weeks.