US Dollar: A Nice Move, But A Long Way To Go

The US Dollar index is now up 16.5% since it bottomed earlier this year, which is a significant rally for a currency that many had begun to jokingly call the US Peso.  The Dollar is currently in a very nice short-term uptrend, trading 5.5% above its 50-day moving average and 11% above its 200-day.  However, it's important to remember that the currency has a long, long way to go to get back to levels seen in the earlier part of this decade.  As shown in the chart below, we need about 5 times the rally we've seen over the past couple of months to get back to 2000 levels.  But the Dollar has historically had very long bull and bear market cycles, and once it gets going in one direction, it usually stays on track for quite some time.

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Comments

[Maulik]

Would be interesting to see the average length dollar bull/bear market periods...Thanks

[Poppa Bear]

Unfortunately the only direction the dollar will be going is south. The U.S. currency doesn't have a chance with the Fed printing like mad and the government buying up insolvent banks, GSE's, and insurance companies.

The only reason the dollar is going up right now is because the Fed is engaged in reverse repos. They're basically buying Treasury Bills to make up for all the G7 countries that are dumping their dollar positions. Every country is now in a race to get out of the dollar.

The following is a very good article on what's really going on.... http://www.bearmarketinvestments.com/death-march

[ScottyB]

That's a pretty substantial trend line break. It builds the case for the beginning of deflation, or asset prices falling against the dollar. There is quite a debate as to whether we will experience inflation or deflation over the next 3-5 years. We know the Fed would prefer inflation. The Euro and Pound have been much less bulletproof over the past year as data about their economies comes to light. Considering that Iceland just went bust and Europe is bailing out banks left and right, the dollar doesn't look so bad when compared to other currencies, especially since sentiment is at an all time low. When everyone on the planet knows the direction of a trade (dollar goes down), that's a warning sign. A lot of the reliable currency carry trades (a risk indicator) have broken down this year, many of which depended on strong Euros and Pounds (and rising rates).