This is one ugly chart. Longtime readers will know I have generally been a dollar bear since the start of this site but we have had almost a month of straight down.This is not how markets usually work. I have written twice about some sort of correction that should come, but of course it hasn't.
Even the Icelandic kronur and the Hungarian forint, both tarred by current account deficit issues have gained against the greenback.
I take the severity of the action and the reaction in foreign equity markets to mean that this is a re-pricing as opposed to a normal currency market gyration.
Perhaps this is a vote of no confidence in Big Ben, perhaps this is an expression of inflation worries or something else but too much longer it this type of sharp weakness will be fundamentally negative for our trade partners (if it isn't already).
I think the moves in the kronur and forint (mentioned above) is significant because of how hated they were so recently.
Who knows how serious this will be and maybe the dollar will turn sometime today for no reason at all but this is why you own some of the things I have been writing about all this time. Things are hitting the fan in some magnitude and a properly diversified portfolio owns a couple of things that can go up while most things go down.
7 comments:
almost every fed chaiman in recent times faces a crisis of confidence early in his tenure. i gguess the market is jsut giving helicopter ben his chance
can you explain what you mean by this:
I take the severity of the action and the reaction in foreign equity markets to mean that this is a re-pricing as opposed to a normal currency market gyration.
This morning I pulled up a monthly dollar chart going back to the early 70s... Basically, 80 is the line in the sand. The 80-83 area has been tested from 1978-1980, 87-88, 91, 92, 95, 2005 and now. All of the prior occasions held...
Don't believe I've seen an RSI like that since ENRON (kidding on the square).
Out of curiosity, why show both RSI and MACD on the chart? Don't they provide similar information?
WRT USD$, was there any indication the Fed increased liquidity when they raised rates yesterday - a give with the left hand while taking away with the right?
Roger I think the dollar is in for more pain possibly a crisis if the Iran Euro for oil exchange gets off the ground. We have already seen Switzerland diversifying out of dollars and it's very clear that China is moving in that direction if the rumors swirling around are true. I have noticed that there has been very little mention of the Iran oil exchange in the mass media. I was wondering what your thoughts are on these developments. It could mean we are going into Iran sooner then what a lot of people are thinking as well to stop that exchange from going live.
It is in the interest of both USA and China to let the Dollar depreciate. So this move looks more like co-ordinated move agreed upon during Prsident Bush and Hu Jintao meeting. If you have noticed John Snow has been forcefully talking down the dollar. http://www.washingtonpost.com/wp-dyn/content/article/2006/04/20/AR2006042001435.html
From the Rolling Stone article The Worst President in History?
"According to the Treasury Department, the forty-two presidents who held office between 1789 and 2000 borrowed a combined total of $1.01 trillion from foreign governments and financial institutions. But between 2001 and 2005 alone, the Bush White House borrowed $1.05 trillion, more than all of the previous presidencies combined. Having inherited the largest federal surplus in American history in 2001, he has turned it into the largest deficit ever -- with an even higher deficit, $423 billion, forecast for fiscal year 2006."
Bush is trying to correct the trade imbalance indirectly with a weak dollar. Too bad most Americans won't realize that Bush is financing the war in Iraq on their back vis-a-vis inflation.
Since China was not willing to devalue the Yuan, the showdown has begun between the US and China.
A lower dollar hurts China by slowing expansion. This is not what the Chinese want. Who will blink first, the Chinese or the US bond and equity market?
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