Thursday, November 5, 2009

Dollar Rally Looks Imminent

There are a number of reasons for the U.S. dollar rally right now:

  • Extreme dollar pessimism (only 3% dollar bulls)
  • Euro overvalued
  • Other countries, such as Great Britain extending their quantitative easing (printing money) programs, the U.S. did not.
  • Gold is extremely overvalued. They are pushing gold on television, if that is not a screaming sell signal I don't know what is. The gold trade is wayyyy to crowded.
  • strong deflationary headwinds in the economy (rising unemployment, retrenching consumer, banks are ABSOLUTELY NOT lending....etc..)
  • Should the market fall (and it will) the dollar will rise because of the huge margin calls needed to liquidate assets fast, and the urgent necessity to raise dollars to settle dollar-denominated contracts. In other words, another severe financial crisis could lead to another short-term dollar rally.
  • Also, the technical picture supports a rally in the expressed by the chart below

Key Point: if you are long commodities stocks, gold, silver, or anything else that is sensitive to a rise in the value of the U.S. dollar I would be VERY cautious.

Dollar Bearish ETF (when it falls dollar rises)

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