Dollar turns good, expect a strong Q4 performance? - BBH

Analysts at Brown Brothers Harriman noted that the US dollar turned in a good week.

Key Quotes:

"It appreciated against nearly all the major and emerging market currencies. The fundamental drivers are well known. The market now recognizes that strong likelihood (near certitude) that the Fed will hike rates one more time this year.  

The rise in US 10-year Treasury yields to 2.40%, after having neared 2.0% a month ago, helped lift the dollar against the yen. Political developments in Europe, especially Spain and the UK, as investors wait to see the composition of the next German government.

The potential head and shoulders bottom in the Dollar Index we have been tracking met the minimal objective (94.20) after the US jobs data (~94.27) before reversing lower.  It left a potential bearish shooting star candlestick pattern in its wake. Initial support now is found near the 93.20-93.40 area.

The magnitude and shape of the dollar's pullback will impact our confidence in the larger technical view. Last month's rally spilled over into October and had left the daily technical indicators extended. However, technical indicators on the weekly charts leave plenty of scope for the dollar to enjoy a strong Q4 performance.   

That said, we question the simple studies that suggest some sort of seasonal pattern favors the dollar. We think such reports are based on a small sample, and if one includes the longer history, no such seasonal pattern is evident. Over the past 35 years, the Dollar Index has risen in 21 of the fourth quarters and fallen in 24. It is true that in the last three years, the Dollar Index rose in Q4, but perhaps it is because the dollar has been in an uptrend."