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April 15, 2010

Dollar Days Numbered

Happy Tax Day 2010, everyone. Sending in one's toll is all the more grating these days due to the multitude of inane government policies our tax dollars are supporting. We pay taxes to fund policies that will only worsen economic conditions to the point where more taxes are required of us. I must say that 21st century America is vastly different than the image of the free-spirited republic that was instilled upon me as a child. When I was growing up, the path to financial success was paved with hard work combined with the desire to provide something valuable to others. Today it seems only political connections will get you anywhere, and the ability to obtain handouts is glorified more than self-reliance. The mob has come a long way in a generation.

Sigh. My mini-rant was intended to provide a segway into a discussion of action in the dollar, but instead has only raised my blood pressure. So rather than work on smoothing the transition and risking cardiac arrest, let's just get on to the intended discussion.

Over the last two months, the chart of the dollar index has, on at least four occasions, posted bearish swings that threatened a larger drop. On each of those occasions, the index has swung back higher almost immediately. Indeed, we may be witnessing the fifth such occasion with today's dollar strength.

dollar index chart

One exercise we failed to take when analyzing the DX is the performance of its components, so let's have a look, starting with the largest component:

euro technical analysis

Another shakeout or two notwithstanding, the euro appears to have posted a significant bottom. The next biggest components are the pound and the yen.

british pound versus us dollar

japanese yen chart

The pound certainly seems primed for a sustained bounce, but the yen is anybody's guess, given the extent of malfeasant monetary policy in Japan.

So the buck appears ready to weaken against at least two of the abused currencies. I also reviewed last week how the dollar is performing against commodities and commodity-based currencies. In my view, any bounce here will simply help roll the DX into a new daily cycle, which will likely turn lower quickly.


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