Eoin Treacy's view Quantitative easing has become such a common practice, as central banks seek to avoid deflation, that the competitive devaluation it entails has gone largely unremarked of late. However, as central banks grapple with mountains of debt the allure of inflating the problem away is irresistible. We might argue about how much inflation or deflation is evident in respective economies but there is little doubt that the actions of central banks have given rise to some large moves in the currency markets. I thought it might be opportune to review a number of trade weighted currency indices.

The Dollar Index hit a medium-term peak in July following a 14-month uptrend and pulled back sharply to break the progression of higher major reaction lows. It has since encountered resistance below the previous peak and has dropped to test the September lows near 79. While somewhat oversold in the very short-term, a sustained move back above 81.6 would be required to question medium-term scope for a further test of underlying trading.

The Deutsche Bank Euro Trade Weighted Index rallied to close its overextension relative to the 200-day MA by mid-September and spent the subsequent three months ranging in the region of the trend mean. The Index broke successfully upwards last week and improved on that performance this week. A sustained move below the 200-day MA would now be required to question medium-term scope for additional upside.

The Deutsche Bank Sterling Trade Weighted Index broke out of its base in April and has been ranging mostly above 80 since. It found support in the region of the 200-day MA this week and a sustained move below 80 would be required to question medium-term scope for additional upside.

The Deutsche Bank Yen Trade Weighted Index broke to a new reaction low yesterday and extended the decline today. In addition to a loss of momentum over the last year, this is the first lower low in the course of what had been a reasonably consistent three-year uptrend. While oversold in the short-term, a sustained move above the 200-day MA, currently below 144, would be required to question the medium-term downward bias.

The Deutsche Bank Canadian Dollar Trade Weighted Index has been mostly rangebound for 18-months but has held a slight upward bias and found support in the region of the 200-day MA from mid November. A sustained move below 151 would be required to check current scope for continued higher to lateral ranging. The Australian Dollar Index has outperformed somewhat while the New Zealand Dollar Index broke upwards to new highs last week.

The Asia Dollar Index posted a failed downside break in June and returned to test the upper side of its range. It broke upwards in late November and a clear downward dynamic would be required to check current scope for additional upside.

The Latin American Dollar Index remains in a medium-term downtrend, defined by a progression of lower rally highs and while it has firmed of late, a sustained move back above the 200-day MA will be required to suggest a return to demand dominance beyond the short term.

In conclusion, while the Yen experienced some of the clearest bearish action, the underperformance of the US Dollar is also worthy of mention. As the Euro, Pound, Asian and commodity currency indices continue to strengthen, the appeal of the US Dollar as a safe haven appears to be less enticing.