Tuesday, May 3, 2011

U.S. Dollar Decline - May 2011 Update

U.S. Dollar weakness is a foremost concern of mine.  As such, I have extensively written about it.  I am very concerned that the actions being taken to “improve” our economic situation will dramatically weaken the Dollar.  Should the Dollar substantially decline from here, as I expect, the negative consequences will far outweigh any benefits.  The negative impact of a substantial Dollar decline can’t be overstated, in my opinion.

The following three charts illustrate various technical analysis aspects of the U.S. Dollar, as depicted by the U.S. Dollar Index.

First, a look at the monthly U.S. Dollar from 1983.  This clearly shows a long-term weakness, with the blue line showing technical support (until 2007):

(charts courtesy of StockCharts.com; annotations by the author)

(click on chart image to enlarge)


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Next, another chart, this one focused on the daily U.S. Dollar since 2000 on a LOG scale.  The red line represents both a trendline as well as a relatively good visual “best-fit” line.  The gray dotted line is the 200-day M.A. (moving average).  As seen on this chart, the U.S. Dollar looks vulnerable to continuing its downward trend that has been interrupted since early 2008:


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Lastly, a chart of the Dollar on a weekly LOG scale.  There are some clearly marked  channels here, with a large, prominent triangle featured.  Triangles are thought of as “continuation” patterns.  In this case, it would be a continuation of the Dollar downtrend since 2002:



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I will be providing updates on this U.S. Dollar situation regularly as it deserves very close monitoring…
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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1332.87 as this post is written

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