Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why the U.S. Dollar Rally Has Legs

Currencies / US Dollar Jan 23, 2010 - 03:13 PM GMT

By: Bryan_Rich


Best Financial Markets Analysis ArticleIn December I wrote a Money and Markets column making the case for a bottom in the dollar. And since then the evidence supporting that thesis has grown. I also said there are plenty of ugly currencies out there that will likely take scrutiny away from the dollar. In fact, in recent weeks I outlined the blemishes burdening three key major liquid currencies. And those blemishes are now being exposed …

Just eight weeks ago, the pontificators were targeting a break of the all-time highs for the euro … parity for the Australian dollar … resurgence in the British pound … and a return to record highs in the yen.

But since then, the tables have turned. The dollar index has rallied 6 percent, and all of the previously favored currencies are falling!

And the euro, the second most widely held currency in the world, has fallen sharply under the weight of its own problems — losing 7.5 percent against the dollar in just eight weeks.

In short, the U.S. dollar has gone from the most hated currency in the world to one receiving remarkably little attention lately. That’s because it’s stopped declining and is now rising. Not surprisingly, price alone has exposed the lack of conviction in the dollar bear camp.

The fundamental and technical evidence points to a rebounding U.S. dollar.
The fundamental and technical evidence points to a rebounding U.S. dollar.

But even in the face of a landslide of negative sentiment and the gradual, yet steady, decline of 2009, I’ve maintained my view that the dollar is not on a path for destruction; rather the weight of fundamental and technical evidence favors the greenback.

The Fundamental Evidence …

Exhibit A: No alternatives

First, the case made for the vulnerability of the dollar falls short when it comes to naming alternatives, as I laid out in my November columns, “Weighing the Dollar Alternatives” and “Weighing the Dollar Alternatives: Part II.”

If you believe the policy responses in the U.S. to the financial crisis should cause the dollar to crater, you must ask yourself: Against what?

The emergency stimulus response has been global. And most likely ALL currencies will fall in value relative to hard, tangible assets like gold, real estate and other commodities … even financial assets like stocks and bonds, if central banks around the world fail to manage exit strategies well.

But currency values are determined only relative to the value of other currencies. And with that in mind, the dollar is positioned, on a relative basis, to perform quite favorably. In fact, I’ve been suggesting a win-win scenario is shaping up for the dollar.

And that leads me to …

Exhibit B: Growth and interest rates

Growth and interest rate differentials are key drivers in determining how capital flows around the world.

Within that framework, let’s take a look at the projections for growth and interest rates from the Organization of Economic Cooperation and Development (OECD) for final 2009, 2010 and 2011:

Growth and Interest Rates

As you can see, the U.S. is expected to outperform other major economies and move rates higher and at a faster rate of change. Plus, based on these fundamental drivers of currency values, the dollar is now gaining favor from the perception of growth and yield advantage.

And now …

Exhibit C: Flight to safety

The problems in the global economy still exist and threaten the sustainability of global recovery. And those risks are acting as potential time-bombs that could derail a recovery. That makes global investors nervous. When they’re nervous they want to own dollars.

We have endured the deepest and broadest global recession since the Great Depression. Over 65 countries were simultaneously in recession. And global investors responded to the uncertainty by plowing money into the deepest, most liquid market in the world — the U.S. Treasury market.

The dollar and dollar-denominated assets represented safety and liquidity then, and will continue to serve in that function as the looming risks threaten the sustainability of a global recovery. Those risks include:

  • Increasingly threatening sovereign debt problems,
  • More liquidity-induced asset bubbles,
  • And rising protectionism and geopolitical unrest.

The bubbling of these risks all present a scenario that would likely fuel greater demand for dollars.

In addition to the fundamental evidence, the case for a continuation of the recent rise in the dollar is strengthened on a technical basis …

The Technical Evidence …

Exhibit D: Trend reversal

Technically, the dollar is positioned to continue higher. On Thursday, the dollar index surpassed its December highs, confirming an impulsive C-wave of a corrective A-B-C Elliott Wave structure.

U.S. Dollar Index

Source: Bloomberg

Without getting into all the technical jargon, this particular indicator projects a move to at least 81.50. That’s 4 percent higher from current levels and nearly 10 percent higher from the November lows.

Exhibit E: Beginning of bull market cycle

The long-term cycles suggest the dollar could be in the early stages of a multi-year bull market, too.

U.S. Dollar Cycles

Source: Bloomberg

The weekly chart above shows the peak-to-trough cycles of the U.S. dollar. Since the failure of the Bretton Woods system, there have been five distinct cycles in the dollar that have lasted an average of 7.4 years.

Comparing the lengths of prior cycles argues that a new bull cycle began in March of 2008, with the risk aversion rush into the dollar. If that’s true, the sustainability of dollar strength could surprise a lot of people.

Lastly, There’s the Market’s Perception …

Currency markets are very sensitive to general market focus. The focus of market participants was intently on the U.S. for much of 2009, scrutinizing all of the policy decisions, selling the U.S. dollar and ignoring the status of the rest of the world. But now the focus has changed …

Indeed, a Bloomberg poll taken this week is indicative of how quickly perception can shift. According to the poll, investors have turned bullish on the U.S., a stark contrast from the views just a quarter ago. And 62 percent think that China — the recently loved “growth engine” of the world — is a bubble.

So it turns out the rest of the world isn’t in such good shape. And comparatively speaking, I think the U.S. and the dollar look pretty darn good.



This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit

© 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