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Market Wrap - US Dollar

Currencies / Forecasts & Technical Analysis Feb 06, 2007 - 12:30 AM

The US Dollar was up versus the Euro and Yen last week, supposedly based on the speculation that the Federal Reserve will not lower interest rates anytime soon, choosing instead to keep them steady and unchanged. The US Dollar index was down 0.4% for the week, closing out at 84.95. The British pound gained versus the dollar based on speculation that the Bank of England will raise interest rates to slow the economy down, which is expanding at a faster pace then the BOE feels safe with regarding inflationary pressures.

The Yen Carry Trade is alive and well, at least for the moment. The market is short yen meaning it is betting it will fall. The U.S. Commodity Futures Trading Commission reported that net shorts rose to a record 173,005 from the prior record of 164,860 the week before.

International reserve assets, excluding gold were up $833 billion for the week and 20.1% yearly to another record $4.97 Trillion.

Bank Credit was up $1.5 billion to a record $8.309 Trillion to just under 10% for the last year. Bank Real Estate loans are up 14.4% during the same time frame. Sounds like a broken record doesn't it, which is a message all of its own.

First up is the US Dollar chart that shows the horrendous bear market the dollar has been in, and remains in. The recent rally is nothing more than a counter trend rally in a bear market, as the chart clearly illustrates.

Next is a chart comparing the performance of gold to the US Dollar. It is a no contest situation. Gold has been handily killing the dollar. We expect such to remain the case. The dollar is as we say: burnt toast.

The following chart shows the relationship between the Euro and Gold. The price of gold has been superimposed over the price of the Euro. As you can see, the Euro and Gold track each other with a positive correlation.

The last currency chart compares the USD to the Swiss Franc. At the bottom of the chart is the price performance for the Euro and another for Gold. Both show the same correlation versus the Swiss Franc due to the positive correlation of the Euro to Gold shown above.

The Swiss Franc used to be one of the strongest currencies, especially as compared to gold - as it was the last currency to give up gold backing.

Why did the Swiss Franc forego gold backing - because the International Monetary Fund (IMF) passed a by-law that states that no member country can have a currency backed by gold. Now why do you think the IMF did that? Cui Bono?

Douglas V. Gnazzo
Honest Money Gold & Silver Report

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

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