Dollar Index condescending behavior at 102.00, secular uptrend towards 120.00 - BBH

After last week’s mixed US data, the Dollar Index struggles to find traction towards its next logical resistance which is around the 103.00 handle. However, a humble behavior is not a sign of alert for dollar bulls, as the asset class trades around the 102.00 handle after a session’s high at 102.40 resistance.

Furthermore, analysts at Brown Brothers Harriman (BBH) noted, “A tax on imports and a tax exemption on exports sounds like the epitome of protectionism.  Not all forms of protectionism are by the World Trade Organization.  WTO rules allow for some types of borders adjustments, but only for indirect taxes, like a VAT.  However, the Republican plan "Better Way” uses the border adjustment on corporate taxes, which are a form of direct taxes.  In the present form, the border adjustment would likely be challenged before the WTO, and likely judged to be a discriminatory subsidy." 

"There is another issue.  Many economists, including among the most respected, like Martin Feldstein, argue that border adjustment will fuel a 25% rise in the dollar's value.  This is important.  The reason the border adjustment is not going to result in higher priced imports and a rise in US inflation is that the foreign exchange market will offset it by driving the dollar higher.”

“Here is the difficult line we are trying to walk.  We are bullish on the US dollar.  In 2008-2009 we argued that the dollar was about to enter a secular uptrend. For the last couple of year's we have been arguing that before the Obama (and now Trump) dollar rally, the third such rally since the end of Bretton Woods, is over, the euro will retest its historic lows near $0.8250.  We project the Dollar Index to rise toward 120 (currently around 102).” 

Dollar Index Technical Levels

To the upside, the most relevant level is the resistance at 103.00 (round figure) which bears rejected over the last 4 trading weeks. On the other hand, bulls are not going to give up as there is plenty room to keep loading the dollar boat. The next 2 supports that matters are close to 99.80 (Dec 2016), then 97.00 (Nov 2016) which is not too far from the 50 SMA.