Does Purchasing Power Parity Mean The Dollar Must Go Lower?

Seriously, has someone stuck EUR/USD to the 1.1285 high with glue? Is it that someone has decided that Purchasing Power Parity means that the dollar must go lower? I recall in my early days in the Barclays trading room when the economist stated it was not an automatic outcome. Indeed, while I cannot recall the event, he turned out to be right. PPP has an amazing elasticity… And here I am now, not even considering any fundamental economic input.

There’s going to be a big “twaaaannnnggg…” coming up.

I wouldn’t rule out a test of 1.1285 again although I feel we’ll not see that. I’ll even allow for 1.1294 – but I really don’t think it’s going to break. There’s even a potential Double Top.

We’ve seen USD/CHF reach within 7 points of a break – at 0.9605. GBP/USD has been doing some fine stuff on the downside – but of course, we need further losses to cement the move. USD/JPY has extended losses far deeper than I had expected but the key there is at the 108.12 low.

The Aussie is due to move lower also while EUR/JPY, following its own amazing drop, has succumbed to a modestly deep pullback but which will still see a new low – but then a deeper correction. Most likely EUR/USD on the downside will outstrip USD/JPY on the upside.

We also have the Dollar Index requiring one more 5-wave rally – and a substantial one at that – to complete a triple three.


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