Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

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

© 2005-2022 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