Major Currencies in a Race to the Bottom

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 |  Includes: DIA, FXA, FXC, FXE, GLD, IEF, IEI, QQQ, SLV, SPY, TLT, UUP
by: Gary Tanashian

Here is the 'Wrap Up' segment from the 15 page NFTRH 86, which went in depth on a range of relevant issues currently facing financial markets:

Currency

Euro hype to the upside was expressed for years by touts who had presented a picture that it was just the big, bad USA alone that had major problems. All along as a public writer and then in my blog I had presented the euro as just another piece of paper with no real value backing it. So recent events are somewhat refreshing from the standpoint of the analysis, which sees major currencies in a race to the bottom [of the barrel].

It appears that the mania toward the opposite pole from over-bullish has gone too far however, and the euro can rally at any time, possibly providing a good relief story for the broad market to pin its ‘hope’ on once again. Similarly, the US dollar has expressed itself in ‘too far, too fast’ fashion amid the euro hype.

The euro just made a weekly close above important support while Uncle Buck remains below the highs last seen during the worst parts of Armageddon ’08. Again, this is a picture of potential short-term relief for many markets, first and foremost obviously, the euro. Longer term, these two debt backed basket cases are featured players in the race to the bottom in the currency world. All major currencies are contestants in this race by the way; at least all major paper currencies. That is how pervasive the ‘debt as economic fuel’ ethic of the current global economic system has become.

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While on the subject of currencies, let’s have a look at the progress of gold as measured in a few of them by way of our Gold-Dow, Gold-Currencies ratio chart. The breakout in Gold-Dow from its Hope ’09 consolidation is very early in its progress. While there can be some post-breakout chop and grind, the risk vs. reward in gold vs. Dow is favorable.

In the currency panels we see gold correcting from over bought in British Pounds and euros after having achieved the rough upside targets of the Cup ‘n Handle patterns. Further upside is projected after some corrective consolidation. Gold in Canada dollars breaks out from the handle but hits resistance at the rim of the cup. It looks to go higher after dealing with this resistance. Gold-Aussie dollar was noted previously as not being a cup due to very low right side, yet was bullish above support. This expressed well in a strong rise up toward resistance.

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We are in the age of natural economic contraction being fought by policy makers in the only way they seem to know; leveraging confidence in their respective currencies into debt creation in a massive, world-wide funding scheme. How long can this work? Perhaps longer than you or I could hold out if we take a strong, active stance against it.

The last year of euphoric bullish activity tells us something, and that is that the masses are not yet ready to accept that the Fed, Treasury and their counterparts around the world cannot ultimately control financial events. So by definition, a confidence scheme runs as long as its one underpinning – confidence – remains intact.

Disclosure: Author is long precious metals, long USD and has no current positions in broad stocks