man hates change; seldom will he quit his old home till it
has actually fallen around his ears. Thomas Carlyle,
1795-1881, Scottish Philosopher, Author
breakdown of the dollar after putting in a series of new
highs illustrates what lies in store for it in the years to
come. However, in the interim some sort of relief rally is
to be expected as the dollar has mounted a very hard
correction in a relatively short period of time.
The 2 year
chart above reveals that the dollar is very close to hitting
a very strong support zone that falls in the 75.00-75.50
ranges. A test of this zone should lead to a bounce that
has the potential of taking the dollar to the 80-82 ranges.
Let's take a
look at some of the currencies via their corresponding ETF's
to see how they are holding up.
traded to 170 ran into resistance and has since pulled
back. It could potentially trade all the way down to the
145-150 ranges before mounting another rally.
The Yen is
also fast approaching a zone that offers strong resistance
(114.40-114.61). If it tests this zone again and breaks
down, it will have put in a triple top formation, which
normally always leads to a very strong correction.
FXC has just
traded above a zone of strong resistance and a failure to
hold above this level will result in a pullback to the 87-87
ranges. Given the intensity of the current rally, there is
a strong possibility that this break out will fail and lead
to a pullback.
experienced a brutal correction in a rather short period of
time. It is trading at new 52 week low and is very close to
testing its 2 year lows. However, note that it is now very
close to testing a very strong zone of support, and as it is
extremely oversold, there is a fairly strong chance that it
will mount some sort of rally soon.
bearish ETF is fast approaching a zone of strong resistance
(28.50-29.00). UUP has generated several negative divergence
signals, and it is now trading in extremely overbought,
hence the odds favour a correction.
Several additional factors to consider
everyone is bearish on the dollar so from a contrarian
perspective this is a bullish development as the majority
are nearly always wrong.
dollar makes exports cheaper and imports more expensive;
this is not what most nations want right now, especially as
the U.S. consumer is cutting back and most economies are
a mass psychology perspective, the following article
indicates that we are at some sort of turning point for
whenever the press starts to comment on something a trend
change is normally in the works.
last three months, banks put 63 percent of their new cash
into euros and yen -- not the greenbacks -- a nearly
complete reversal of the dollar's onetime dominance for
reserves, according to Barclays Capital. The dollar's share
of new cash in the central banks was down to 37 percent --
compared with two-thirds a decade ago.
We are not
long term dollar bulls, but we feel that dollar is due for a
relief rally as it has mounted a very strong correction in a
relatively short period of time. We felt the same way from
late 2007 to early 2008 and went on record to state that the
dollar would mount a very strong rally that would catch the
majority with their trousers down.
after studying the charts of several currencies we find that
most are fast approaching strong zones of resistance, which
should lead to a correction before the next leg up. As the
dollar has been hammered so viciously it would not be wise
to open up new bets against it now. The most prudent move
would be to wait for a rally before placing new bets against
it, and if you are willing to take a bit of a risk you might
even consider opening up long positions in the Dollar and or
short positions in the Euro.
Our long term
view is that the dollar is in trouble, and it could
potentially shed an additional 60% of its value in the years
charts provided courtesy of
if we begin
with certainties, we shall end in doubts; but if we begin
with doubts, and are patient in them, we shall end in
certainties. Francis Bacon 1561-1626,
British Philosopher, Essayist, Statesman