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Friday, February 22, 2013

Dollar index

I am constantly reading about how the dollar is going to crash.  I have been reading this for years.  The FED has been busy printing money since late 2008 and yet it hasn't crashed.   Lets look at the monthly chart.

Since the dollar bear market started in the early part of the last decade it has rallied across its 18 SMA four times.  The first three times ended with a cross back below that MA.  However, check out the current action.  DXY has spent several months testing its 18 SMA from above and now appears to be rallying off of it.  It looks like it is different this time to me.  Is the dollar index getting ready to embark on a bull market?  That sure would catch all those dollar bears by surprise, LOL.  That would certainly be negative for the Euro.  As for other markets besides currencies it is more difficult to say.  The dollar index has been correlated and reverse correlated to just about every other asset out there at different times.  A lot of people think gold is so high because the dollar was going down.  Really.  When I look at the chart I can see DXY is slightly higher then its low point in late 2004.  Gold more then tripled from that time.  A rising dollar should be at least a slight negative for all commodity prices.  How much is hard to say though.  It will also hurt exports and corporate revenue some.  Although a slow orderly rise should not be too much of a problem.

I find this situation pretty interesting.  The dollar bottomed and gold topped at the time of the unlimited QE FED announcement.  Both items had made a big move in anticipation of the event so a sell the news reaction was to be expected and I wrote about that in the blog at the time.  However, the moves have continued well past a normal profit taking move.  Its almost like gold is making a major top instead of a correction within a bull market and the dollar is making a major bottom.  Is that possible?  That might explain the extraordinary weakness in the gold mining stocks.  I don't really know.  I sure don't see any clear sign gold is making an important bottom yet though.


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