The outlook for the dollar in the week ahead is not about economic data or the FOMC and ECB minutes. It is about the stability of the global capital markets. 

Many are looking for an event or official action that will stop the rout that is of historic proportions to start the year. We too have been thinking about what it would take to stop the rot. However, none of the frequently mentioned events, like an agreement to cut oil output, or for a coordinated policy response by the major countries, are particularly likely.

Nevertheless, perhaps the selling has been a bit like a fire than can exhaust itself. If market speculation that the sovereign wealth fund is an important driver here, we can assume that it is a one-off portfolio adjustment.Many Asian markets, including China, have been closed in the past week, and their return poses the immediate risks.However, the European and US markets may have begun stabilizing at the end of last week, and increasingly media reports quoted analysts and fund managers recognizing the excessive nature of the price action. 

Our reading of the charts suggests that the dollar’s swoon against the euro and yen are over of nearly so. As we have noted the US Dollar Index is heavily weighted toward Europe and is not representative of US trade flows.Two of America’s four largest trading partners (Mexico and China) are not included. Yet it is a much-followed proxy of “the dollar,”The RSI appears to be turning higher, and the MACDs could turn next week.

It briefly slipped below the 61.8% retracement objective of the rally from the August low. It was found near 95.65.It did not close below it.The initial hurdle is seen near 96.60-97.00. Above there, a push through 97.50-98.00 would lend credence to what now is only a suspicion that the dollar’s downside correction is over.