The US Dollar Is Topping. When?

We all know the US Dollar has been in a furious bull market, from under 79 in May of 2014 to over 98 in March 2015, and it just hit a decade high against the euro. But, markets correct and no trend lasts forever.

Points to consider:

  • The dollar has benefitted from several large trends, such as weakening Euro zone, Japanese Quantitative Easing (massive purchases by the Japanese Central Bank), squeeze on the $9 Trillion borrowed in dollars by foreign corporations (per Jim Rickards), and global desire for safety by moving assets into a broad and liquid market – the United States. Scared and dark money flow to the US to escape other countries.
  • The dollar has gone parabolic. Such moves can last longer than most expect but they always correct, often in a crash.
  • Is the strength in the dollar a vote of confidence in the US economy or a vote against other countries? Either way the dollar strength will reverse.
  • The official US national debt is currently over $18.15 Trillion and growing rapidly. Does that demonstrate long term currency strength?
  • The dollar (monthly chart) is strongly over-extended as measured by any number of technical indicators. Note graph below. Over-extended is no guarantee of a reversal but it certainly suggests caution.
  • The weekly chart is equally over-extended. See chart below. Risk of a reversal is high. The daily chart (not shown) has the same message.

A 20 year chart of the dollar shows interesting cycles, as shown below:

dollar_high_low_1995_2015

dollar_index_1995_2015

dollar_index_2010_2015

On the other hand, the dollar is still trending upward and could rally further into a blow-off that creates considerably more trauma in the FOREX markets. Read analysis from Clive Maund.

My take is that the dollar is at or close to a multi-year high and that the trip back down will be ugly. But most markets are managed and consequently what makes sense is often irrelevant when manipulated by High-Frequency-Trading and political agendas. It is far better to be an insider rather than an analyst peering through purposely distorted windows into the opaque world of international capital flows and currency manipulations.

Stacking silver and gold is far safer and more reliable than speculating about currencies and their future value.

 

Gary Christenson | The Deviant Investor

 

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