Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19
Is There a Stock Market Breakout Ahead? - 6th Nov 19
These Indicators Aren’t Putting to an Economic Resurgence - 6th Nov 19
Understanding the Different Types of Travel Insurance - 6th Nov 19
The Biggest Gold Story Of 2020 - 6th Nov 19
Best Money Saving FREE Bonfire Night Fire Works Show Sheffield 2019 - 5th Nov 19
Is the Run on the US Dollar Due to Panic or Greed? - 5th Nov 19
Reasons Why Madrid Attracts Young Professionals - 5th Nov 19
Larger Bullish Move in USD/JPY May Just Be Getting Started - 5th Nov 19
Constructive Action in Gold & Silver Stocks - 5th Nov 19
The Boring Industry That Hands +500% Gains - 5th Nov 19
Stock Market Chartology vs Fundamentals - 4th Nov 19
The Fed’s Policy Is Like Swatting Flies with Nuclear Weapons - 4th Nov 19
Stock Market Warning: US Credit Delinquencies To Skyrocket In Q4 - 4th Nov 19
Stock Market Intermediate Topping Process Continues - 4th Nov 19
Stock Market $SPY Expanded Flat, Déjà Vu All Over Again - 4th Nov 19
How To Buy Gold For $3 An Ounce - 4th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

The U.S. Dollar Index, How Low Can You Go?

Currencies / US Dollar Feb 03, 2011 - 02:46 AM GMT

By: Guy_Lerner

Currencies

Best Financial Markets Analysis ArticleWhen looking at the Dollar Index, I am reminded of the song the "Cha Cha Slide"when the performer says, "How low can you go?" There is no question investors believe that the Dollar is going down and that equities are only going up all courtesy of Federal Reserve Chairman Bernanke and his QE 2 policy. Yesterday's rally in equities and concurrent drop in the Dollar served to remind me of the fact that currency devaluation and increasing liquidity remain the drivers for equities. It has been that way since 2007, and why should it stop now? For the record, the Dollar Index was down a hefty 0.86% yesterday while stocks enjoyed a strong trend day.


The relationship between the Dollar and the SP500 can be seen nicely in this weekly chart. See figure 1 with the S&P Depository Receipts (symbol: SPY) in blue and the PowerShares DB US Dollar Bear (symbol: UDN) overlaid in red. UDN moves inversely to the Dollar Index, and for our purposes here, UDN remains highly correlated to the SPY. For example, at points 1 and 2, the UDN peaked (or the Dollar bottomed) and stocks subsequently struggled. Similarly, at points A and B, UDN bottomed (or the Dollar peaked), and equities found better footing. There is probably nothing new here, but this relationship certainly serves as a reminder of what is driving stocks.

Figure 1. SPY v. UDN


But let's get back to our question: "How Low Can You Go?" Investors believe there is no limit to the "mad man" Bernanke; he will stop at nothing to devalue the Dollar and pump up stocks. While this is widely believed, a weekly chart of the Dollar Index says differently. See figure 2.

Figure 2. Dollar Index/ weekly


Although the Dollar Index has been crushed, it really has been crushed all the way back to trend line support, and this is trend line support going back to the bottom in the Dollar in 2008. This is a rising trend line formed by a series of higher lows, and this is bullish until it isn't. In essence, the trend line has yet to be violated and most importantly, it has yet to validate the belief held by investors that Bernanke and company are out to devalue the currency. In addition and what should be readily apparent, the Dollar Index is at a critical level. Failure of this trend line to hold, and it is lights out for the greenback, and equities (and all assets for that matter), which have been acting like all is well, should go ballistic to the upside. How else can you interpret it?

What is the likelihood that the Dollar Index will bounce? Return to figure 2 and look at the indicator in the lower panel. The indicator measures the distance that the current price is from its 40 week moving average. The Dollar will normally find a bottom (temporarily or tradeable) when it is about 6% below the 40 week moving; the current value is 5.28%.

Once again, the Dollar Index remains the key for equities. The Dollar Index is at an important level, and failure here will validate the notion that Ben Bernanke is really out to destroy the greenback.

So "How Low Can You Go?" We are about to find out.

To subscribe to Premium Content click here: Subscribe

By Guy Lerner

    http://thetechnicaltakedotcom.blogspot.com/

    Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

    © 2011 Copyright Guy Lerner - All Rights Reserved
    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.

    Guy Lerner Archive

© 2005-2019 http://www.MarketOracle.co.uk - 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