The US dollar index, a measure of the strength of the greenback against a basket of the world’s major currencies, has reached an important historic trendline, going back to 2005. Its recent strong upsurge, on the back of the knowledge that the Federal Reserve has determined to end QE this month and is in the process of planning interest rate rises, has been responsible for this.

However, it would be a mistake to think that this can go on indefinitely, or at least without a break. The chart above shows unmistakable signs of an exhaustion surge. This occurs when market participants who have been on the sidelines suddenly wake up and start to think that they might be missing something. The rush to buy,  in this case the US dollar against their favourite counterpart currency, and are facilitated by more involved and experienced sellers, who are happy to take their profits and patient enough to wait for the inevitable pullback so that they can resume their positions at a lower level. It happens in all markets and Forex is no exception. Be careful out there.

Aussie gets a reprieve on China data – for now

AUDUSD hourly

The HSBC Purchasing Managers Index (PMI) for Chinese manufacturing came in at a level in excess of 50 last night (GMT) [50.2 to be exact]. Any reading over 50 indicates expansion and this was enough to give the much battered Aussie dollar a small boost overnight.

However, the outcome was less than expected by the market and even as we write it is apparent that this fillip to the Australian unit is likely to be short lived.

The additional factor has to be that, no matter how well respected the HSBC is as an institution, economic data out of China has proved in the past not to be the most reliable that we have. The dominant trend in the Aussie is still strongly to the downside, and we will be respecting that.