Currencies
Diamond Rated - Best Financial Markets Analysis ArticleIn the last BBMR we focused on the US Dollar and concluded that a major break of very long term support was imminent and that a substantial devaluation of the greenback vis-à-vis its major currency pairs and commodities was likely. It’s always healthy to revisit one’s conclusions in light of developments in the market. Recent action has caused me to reevaluate and question the bearish view on the USD and commodities as well. I think that there is a valid bullish case to be made for the Dollar as well as a bearish case for gold, silver, oil and other commodities. I will explore these views in this report.
SUMMARY
It is possible that the US Dollar may have successfully tested very long term support twice while leaving behind double Bear Trap reversals much as the S&P 500 did in 2003 and 2009. We may be witnessing a transition from the Inflation/Reflation trade to the Economic Recovery and Growth trade. If so, this transition is coming far sooner than expected. There are major differences between the two trades, the most important of which involves the relationship between the Dollar and commodities. If the Dollar has bottomed, then the commodities bull is likely over and we will see falling prices for major economic inputs coinciding with renewed economic growth. This would be the most bullish configuration possible for the equities markets and may explain the rampaging, relentless bull move we are currently experiencing.
The US Dollar : “Not Acting Right”
re you one of the millions of investors who wish they could have bought the equities bottom in March? Did you sit on the sidelines waiting for the opportunity to jump in but never pulled the trigger? Life rarely gives second chances, but it is possible that investors are being presented with a good substitute for catching the bottom in US equities, because an alternate way to bet on future economic growth in the US is to go long the Dollar. Let’s go back to the future and see how the current setup in the greenback may be reflecting a major buying opportunity on US prosperity.
Before I proceed, let me first say that I am not a Dollar Bull. Yet. I am reevaluating my Dollar Bear position. Since there are, effectively, no Dollar Bulls at all anywhere, I know that to suggest that the worm may have turned for the world’s reserve currency is the contemporary equivalent of suggesting that the world was round and not flat in Galileo’s day. Please try to suppress the urge to snicker, guffaw and otherwise deride the views expressed herein. Keeping an open mind may possibly help your market position in a big way! I am perfectly prepared to move back into the Bear fold if and when the market should give me adequate reason to do so.
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