Friday, March 25, 2011

U.S. Currency Weakness - A Few Thoughts

I have written many posts concerning the vulnerability of the U.S. Dollar to a substantial decline, and the ill-effects such a decline would have on the U.S. economy and markets.

The U.S. Dollar is now at 75.65, and is exhibiting weak "price action" and weak technicals.  As one can see from the following chart, the Dollar is nearing the bottom of its long-term range:

(click on chart to enlarge image)(chart courtesy of; annotations by the author)


I would like to reiterate a few thoughts from past posts regarding the U.S. Dollar:

from the January 13, 2010 post:
Many people, especially those of the “hard money” and “Austrian” philosophies, have long held that many of the actions we (as a nation) have been taking to combat our current period of economic weakness would unduly pressure the dollar.  These actions have included very low interest rates, truly outsized interventions (including “money printing”) and deficit spending.
from the July 30, 2010 post:
For many reasons I doubt that the 70.7 level reached in 2008 will serve as any type of significant technical support.  Below the 70.7 level is obviously a “new frontier” with no obvious strong technical support.  In essence, from a technical perspective the downside would appear rather open-ended.
from a February 3, 2011 post on a different site:
I have heard the widespread arguments that conclude a lower dollar as positive and beneficial to the U.S. economy. However, I think these arguments are largely based on the assumption that such a dollar decline would be “reasonable” (i.e. not a sudden decline of unexpected magnitude). However, in my (admittedly very unique) opinion, various technical and fundamental analyses support a substantial dollar decline. My analysis indicates that once the U.S. dollar (currently at 77.07) falls below the 70-area it would likely usher in a new trading environment that would not be supportive.
Should a substantial U.S. dollar decline occur, as my analysis indicates, I think it will prove very detrimental to the U.S. economy and financial markets. Furthermore, it will prove very difficult to reverse.

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1309.66 as this post is written

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