U.S. Dollar: Nice Move, But a Long Way to Go

The US Dollar index is now up 16.5% since it bottomed earlier this year, which is a significant rally for a currency that many had begun to jokingly call the US Peso.  The Dollar is currently in a very nice short-term up trend, trading 5.5% above its 50-day moving average and 11% above its 200-day. 

However, it's important to remember that the currency has a long, long way to go to get back to levels seen in the earlier part of this decade.  As shown in the chart below, we need about 5 times the rally we've seen over the past couple of months to get back to 2000 levels.  But the Dollar has historically had very long bull and bear market cycles, and once it gets going in one direction, it usually stays on track for quite some time.

click to enlarge

Comments

[Rokjok777:]

Sucker rally based on the fact that you need to buy USD to unwind many derivative positions. Once that trade finishes unwinding, watch out below

2008 Oct 21 02:08 PM

[Consider_this:]

USD is not likely to return to much higher rate. We're not even close to the end of this whole recession story yet. Alt-A, Option-Arm, Interest-Rate crisis may be yet to come.

I don't think the current strength of USD is anything but a short term bounce. The world needs USD to settle debts that's why it's been going up, but there's very little real savings demand for USD.

Debt settlement will subside, the Savings undercurrent is the real trend for the US currency, and that's currently not looking good at all. The world's trust has been betrayed by Wall Street, and is not likely to return soon. USA is no longer a trusty world banker.

Who/What replaces US as the world's banking system is still in debate, but no matter who/what it is, it doesn't bode well for the long term strength of the Dollar.

2008 Oct 21 02:12 PM

[xsuddensam:]

Dollar's going down and out for a very long time. There's no good news anywhere; debt, both public and private, continues to grow alarmingly, increasing job losses, increasing monetary manipulation and currency creation, a murky CDS market, increasing commercial real estate mortgage defaults, and on and on and on...........

Faber and Rhoubini are telling it like it is. Buckle up for the ride of your life.

2008 Oct 22 10:42 AM

[Here's a th...:]

It seems to me this argument is dead. The debate about the US collapsing into the next Zimbabwe is over. The market has chosen it's direction and we're only crossing the threshold.I certainly don't see us ramping up the smelters and printing gold.The stability of the Euro has long been in question. Oil has significantly further to unwind in the face of reducing demand.

2008 Oct 22 10:44 AM

[CLH:]

Yes the dollar is headed up with small corrections for maybe 5 years.

2008 Oct 22 10:27 PM