Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

U.S. Dollar Rally for Real?

Currencies / US Dollar Dec 18, 2009 - 06:19 PM GMT

By: Sy_Harding


Best Financial Markets Analysis ArticleIn this column in September, I wrote of how the U.S. dollar has been in a long bear market since 2001, while investors and traders were acting as if the dollar’s decline had just begun this year. Betting against the dollar had become the talk of the financial media, with “Sell the dollar, buy the Euro” the most popular advice from analysts.

With big profits having already been made by the smart money that had been shorting the dollar for several years, and public investors belatedly convinced the dollar’s total demise was imminent, I said “It’s more likely time to be watching for an upside reversal”.

I gave two reasons for that expectation.

In our technical analysis the dollar was oversold beneath its long-term 30-week moving average, to a degree that usually results in a rally at least back up to retest the overhead resistance at the moving average, even if the downtrend is to resume. That was a reason to expect at least a short-term rally.

My reason for believing the dollar was perhaps close to a more important bottom was that investor sentiment for the dollar had become extremely bearish. Investor sentiment is known as a ‘contrary’ indicator, in that investors are usually very bullish at market tops (any market), and very bearish at important market lows. And the dollar was (and still is) completely unloved, out-of-favor, sold-short very heavily, with positioning in strategies calling for a further decline in the dollar very popular.

Sure enough, in November the dollar quietly began to strengthen. It first managed to break out through the resistance at its short-term 30-day moving average, and has continued to rally since.

So is the rally for real?

It is now at an important juncture. Its rally of the last five weeks has it back up to its 30-week moving average, potential overhead resistance.

There have been two bear market rallies in the dollar, one in 2005, and another last year, when the dollar managed to break out above its 30-week m.a. The dollar gained 15% and 24% in those bear market rallies before its downtrend resumed.

Given other conditions at present, a similar move should be underway if the dollar can continue to rally enough to break out above its 30-week m.a. this time. And if this turns out to finally be the end of the dollar’s eight-year bear market, the upside could be substantial.

On the fundamentals there are a number of influences that could be bringing the dollar’s long slide to an end.

For instance, throughout the dollar’s serious decline, which began in 2001, each Administration has claimed it supports a strong dollar, but did nothing about its decline. That’s understandable, since a weak dollar helps the U.S. economy by making U.S. exports less expensive in foreign countries (and imports coming into the U.S. more expensive). And the U.S. economy has been in two recessions in the last nine years from which it had to undertake unusual stimulus efforts to extricate itself.

However, with the economy now showing enough signs of economic recovery that talk is of the Fed having to soon remove the punch bowl of easy money to prevent inflation, it may also finally be in a position to take steps to strengthen the long-sagging dollar.

It has reasons to do so. Global complaints about the dollar’s loss of value has had pressure mounting all year to replace the dollar in international trade with a basket of global currencies.
The decline in the dollar’s value has also raised the risk that foreign investments in U.S. dollar denominated assets will dry up, or even that dumping of those assets could begin.

So, there are reasons to believe the U.S. government will begin to actually support a strong dollar instead of just talking about it (and may have already begun to do so). That would provide another reason to believe the current short-term rally in the dollar can have legs, could even finally be the beginning of a new bull market for the dollar.

Yes, that does raise concerns for the stock market, since for quite some time the stock market has been moving opposite to the dollar, declining when the dollar rallied, and rising when the dollar declined. And the stock market has stalled and moved sideways since the dollar began to rally in November.

However, that does not necessarily have to continue.

Historically, the dollar has moved as often with the stock market as opposite to it. For example, the dollar was in a strong bull market in the 1990’s in lockstep with the stock market’s bull market, with the U.S. Dollar Index rising from a depressed 78 in 1992, to a high of 121 in 2001.

So we shall see..

Sy Harding is president of Asset Management Research Corp, publishers of the financial website, and the free daily market blog,

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules