Monday, December 04, 2006

The US Dollar

Above this post you see a weekly bar chart of the US dollar index. (Ignore the bars on the far left hand side of the chart; they are the residue of an editing mistake!). Above this chart are pictures of two covers from the Economist Magazine. The top one shows the December 4, 2004 cover while the other is the cover of the latest issue of the Economist.

Over the past two years the mainstream media have been emphatically bearish on the US dollar. This sentiment is currently shared by virtually everyone I talk to and by almost all economic commentators I read or hear.

On the weekly bar chart of the dollar I have marked the point in December 2004 at which The Economist came out with a bearish US dollar cover. About 4 months later the New York Times weighed in with a highly unusual and unequivocal editorial announcing that "the dollar has nowhere to go but down". You can see what happened over the following 8 months.

I think the market is now in a similar situation. This time the New York Times beat The Economist to the punch with its May 20, 2006 editorial "Gambling on a Weaker Dollar". And The Economist has just now added its weight to the pile of bearish opinion.

I see support for the dollar index at 82.50. I think the market is about to begin an 18 month move up to 100.

1 comment:

Anonymous said...

I just got back from two weeks in Honolulu which was packed with Aussies, Eurofolk, and Japanese. More pro-dollar sentiment.

This area has been support for over 30 years. Could change but I doubt it.