Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Why PEAK INFLATION is a RED HERRING! Prepare for a Decade Long Cost of Living Crisis - 9th Aug 22
FREETRADE Want to LEND My Shares to Short Sellers! - 8th Aug 22
Stock Market Unclosed Gap - 8th Aug 22
The End Game for Silver Shenanigans... - 8th Aug 22er
WARNING Corsair MP600 NVME2 M2 SSD Are Prone to Failure Can Prevent Systems From Booting - 8th Aug 22
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22
What it's like at a Stocks Bear Market Bottom - 29th July 22
How to lock in a Guaranteed 9.6% return from Uncle Sam With I Bonds - 29th July 22
All You Need to Know About the Increase in Building Insurance Premiums for Flats - 29th July 22
The Challenges on the Horizon for UK Landlords - 29th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Dollar at Major Turning Point?

Currencies / US Dollar Feb 19, 2008 - 02:00 AM GMT

By: Money_and_Markets

Currencies

Best Financial Markets Analysis ArticleJack Crooks writes: No matter how much money you've made betting against it, there comes a point when you've got to start feeling sorry for the U.S. dollar. In recent years it's become more hated than even the New York Yankees. And that's saying something!

You already know why the dollar has been suffering. Enormous trade deficits, a deteriorating real estate market, rising consumer debt, etc. All of these are contributing to the dollar's demise.


But, I don't believe the United States will soon become the next banana republic. In fact, as I watch closely, I often wonder if some surprisingly good things may be just over the horizon for the dollar.

Today, I want to examine this possibility more closely ...

In the Short-Term, Everything Depends on How Deeply the Rest of the World Suffers

By now, it's obvious to just about everyone that the recession-storm battering the U.S. markets is rapidly moving across the Atlantic Ocean.

To be sure, there's a tidal wave of economic weakness rolling ashore overseas.

It's clearly washing over the United Kingdom ...

  • U.K. house prices fell 0.8% in the fourth quarter;
  • The U.K. savings ratio dropped below zero for the first time in roughly 20 years; and
  • Household debt service makes up a whopping 14% of incomes in the U.K.

And Europe ...

  • Europe's services industry is expanding at its slowest pace in four years;
  • Economic growth in Europe grew by only 0.4% in the fourth quarter, down from 0.8% in the prior quarter;
  • European exports to the U.S. and Japan are contracting; and
  • Investor confidence in Germany's economy — the largest contributor to Europe's growth — is dismal, just above a 15-year low point.

And as you might expect, as these other countries experience the same economic woes as the U.S., they seek similar solutions.

So far, those solutions have meant monetary policy adjustments. And some global central banks are already following the example set by the U.S. Federal Reserve — cutting interest rates.

Conventional wisdom says changes to monetary policy have a lagged effect on an economy. And I'm pretty sure additional Fed interest rate cuts are in the pipeline.

So it's fairly reasonable to expect these accommodations to help the U.S. economy eventually.

And since the monetary policies of the Bank of England and the European Central Bank are at least a few steps behind the Federal Reserve, I would expect those economies to recover farther down the line, too.

Economic Growth Cycle

Picture the normal business cycle as a series of waves, and you'll get a sense of how it all works. Basically, the country that hits the trough first is also likely to hit its next crest first.

Sure America's economy hasn't escaped the threats of recession just yet. It's still battling a falling housing market, tightening credit conditions, and uncertainty on the unemployment front.

But as a currency trader, I have to ask myself ...

Is Most of the Bad News Already Priced into the Lowly Greenback?

Assuming the U.S. economy does emerge from recession ahead of other countries, the dollar will be in the best position to benefit.

And I'm starting to see signs of this belief in the currency market. Consider these two important turning points ...

Fundamental Turning Point #1: The most recent U.S. non-farm payrolls report showed that the U.S. economy lost 17,000 jobs in January. That's a horrible piece of information.

Yet the dollar finished dramatically higher on that day, and proceeded to move sharply higher over the following week.

Dollar Euro Currency Jobs Report

What this tells me is that U.S. economic weakness IS already being discounted in the market.

Fundamental Turning Point #2: Two words that will likely be critical in determining the dollar's ability to recover are "trade balance."

See, a big reason for recent negativity on the dollar stems from the U.S. trade deficit growing to "unimaginable levels." But there are signs the tide is turning.

A report on Thursday showed the trade deficit shrank more than expected in December. In fact, the deficit through all of last year showed overall improvement for the first time in six years!

Remember, falling trade and current account deficits mean the abundance of dollars sent overseas to lubricate global markets are now receding.

I think this will exacerbate the credit problems that are beginning to wreak havoc on business investment and consumer spending in other parts of the world.

Bottom Line: This Could Be a Major Turning Point in Sentiment ...

In a couple months we may view February 2008 as a pivotal time in the currency markets.

Reason: It's looking like traders are more interested in selling currencies against the dollar. Just take a look at my chart of the euro and you'll see what I mean.

Euro Futures Price Currency Exchange

My chart shows price at the top and trading volume at the bottom. I've circled notable price and volume bars where relatively high levels of volume correspond to considerable price declines or significant lows. All of this reveals an emerging bias toward selling euros.

All this tells me that traders may be ready for a major change. And I'll be monitoring this situation closely, so stay tuned!

Best wishes,

Jack

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 http://www.moneyandmarkets.com .

Money and Markets 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