What’s Next for the U.S. Dollar?
Currencies / US Dollar Apr 08, 2019 - 07:08 PM GMTBy: Gary_Tanashian
People don’t understand gold. They don’t understand the U.S. dollar either.
Mostly, it’s the same people.
Gold bugs thought we were debasing the dollar by printing our way out of the 2008/9 financial crisis. Ha! Actually, the dollar has been rising since the start of that recession. The dollar, not gold, is actually the safe haven for the markets.
Right now, it’s range bound, but the dollar strengthened as much as 47%, at its best, during the last 11 years.
The dollar saw its best rally in mid- to late-2008 when Lehman Brothers was collapsing and the financial system was in dire straits.
Do you remember what gold did during that turmoil? It fell 33%. Silver lost 50% of its value. So much for “safe haven.”
But, like I said, the Greenback has been in a trading range, between 89 and 104…
Is the Dollar About to Crash?
Late last week, Bloomberg published an article saying that the Fed’s recent “surprise” move – to hold the benchmark rate steady for the rest of 2019 – could spell disaster for dollar bulls.
Besides this being the time of year when the Greenback typically peaks, followed by some weakness, are these “experts” right?
I don’t think so. Not with Brexit on the horizon.
The thing is, and it shocks me that the “experts” seem to miss this all the time: Currencies trade relative to each other.
The U.K. is set to leave the EU by either next week or by May 23 if the British Parliament is willing to accept Prime Minister Theresa May’s deal. She’s even offered to resign in return for a “yes” vote.
Either way, the deal isn’t pretty and disruptions will ripple through the continent. Any weakness in the euro could prop our dollar up, regardless of what the Fed does.
This speaks to the fact that we remain the “best house in a bad neighborhood.” Even with our crazy money printing, we only capped out at 26% of GDP. The European Central Bank (ECB) printed 42% of the eurozone’s GDP. Japan printed 100% of its GDP.
I don’t see the dollar crumbling in the near term. In fact, I expect it to stay in its current trading range, with first support at recent lows around 93 or 94, and ultimate support around 89.
What To Do When It Rallies…
Ultimately, I expect it to rally at least one more time, up towards around 120 or 122, a move we could see into the next crisis, between 2020 and 2022. Since the coming crash and financial crisis should be much worse than what we endured in 2008, in the 1980s, or even the 1930s, the dollar should shoot higher.
But, once we hit 120 or so, I’m neutral on the dollar. At that point, it would be time to start taking money out of the U.S. dollar, Treasury, and AAA corporate bonds and putting it back to work in the stock market and commodities, including gold.
It would be best to do this around late 2022 or so.
For now, though, don’t pay too much mind to the “experts.” The dollar remains a safer haven than gold. And the stock market – in the Dark Window event we’re experiencing now – is the play to be to make money.
Harry
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Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.
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