The dollar has had a really, really bad month.
Unless it makes a stunning reversal on Friday (it didn't), the buck is on track for one of its largest monthly losses in a decade, amid a drop to at least a two-year low.
Downside momentum in the dollar hasn't necessarily had a tendency to lead to mean-reversion. Unlike what we often see in stocks, extreme moves in one direction aren't a great predictor for contrary moves in the other direction.
That's been the case for large monthly declines, as well. When it has suffered at least a 3% decline to at least a two-year low, the dollar showed a gain over the next six months only 40% of the time, and its median return across all time frames was below random. There are other measures showing sentiment on the buck is pessimistic enough to lead to a shorter-term snapback, but that now needs to fight historically bad momentum.
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We also looked at:
- Returns in the dollar, gold, and stocks after big down months in the dollar
- Gold has uncoupled from one of its main drivers - real interest rates
- Individual investors are historically pessimistic during a historically massive rally in stocks
- The S&P has had a historic 4-month run
- The participation among stocks in the Nasdaq's rally has been unimpressive
The post titled One of the dollar's worst months ever was originally published as on SentimenTrader.com on 2020-08-03.
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