The Diving Dollar Enters Unchartered Territory

The strong dollar policy doesn't seem to be working so well this week. Oh well, everyone knows that when the Treasury Department says they favor a strong dollar policy what they really mean is, "We have to use the word 'strong' - it is politically unacceptable to say we want a weaker dollar, but that's what we really want. But, not too weak, of course."

If a weaker dollar is what they really want, they are surely getting it now.

The buck has entered recently uncharted territory at under 81 on the U.S. Dollar Index, made up primarily of the euro but with about equal weightings of the Japanese yen, British pound, and Canadian dollar with a few others thrown in for good measure.

The euro hit an all-time high early Tuesday at just over $1.37 and even the yen strengthened against the greenback. The Bank of Canada raised interest rates Tuesday morning to 4.5 percent and the loonie seems destined to be at par with the U.S. dollar before long. You'll get CAD$1.05 for your dollar there today - when we were there last summer we got $1.15, three years ago we got $1.33.

The five-year picture surely looks dangerous to you if you are a practitioner of technical analysis.

For some time now, the 81 level has been a mystical sort of "point-of-no-return" for those who make a living divining meaning from squiggly lines on charts.

The 25-year chart shows why the low 80s level is so important - it's only been there once before, back in 1992. The year 1992 was generally not a very good year - everyone was saying, "It's the economy, stupid." Now some people are saying, "It's the stupid economy".

Like gold as it neared multi-decade highs last year, traders don't know what to do when they run out of historical comparisons - apparently their computer algorithms can't deal with crashing through a 15-year old support level and then all hell breaks loose.

Is that what's about to happen to the dollar?

Comments

[phdinsuntan...:]

Chinese and vietnamese workers beware!
there is a new low wage player!
The american labor force!
They will work for food and gas
(not included in labor costs same as in FEDs CPI).
Came on, real inflation is really measured by gold prices,
and there is no one strong enough to do early 80s reaganomics
again, so dollar, see u in hell!
Or maybe some asian gentlemen can sell a few USTB
and end all this mess (temporarily).

2007 Jul 11 09:42 AM

[LeeCarlson:]

For years and years, politians have wanted a strong dollar ,..for what,..I'll never figure out !
I used to try to sell high priced products overseas but we were simply priced out the market.
It's really insane when people overseas ask the price of an American Ford only to find that it costs
more than a top of the line Mercedes ! But, that's the Fed. for you.
Now,..like it or not, we have a weak dollar,..so weak that the OPEC members are starting to price oil in EUROS instead of dollars. And people wonder why oil is expensive !!! This Country has so mismanaged the economy , they couldn't have done a worse job if it was intentional,..which maybe it is !
If the dollar gets weak enough, the JOBS will come back guys, but you will be earning only aboy $3.00 per houur ! !!! It will also increase the price of housing as investors will be buying them cheap ! Grabbing up all the real estate they can find.
But that's what happens when you import virtually everything and export nothing ! The amount of Greenbacks being held by China and the Mid-east alone is enough to buy every share of stock in the USA and still have a lot left over ! And, to fight a war with more dollars being wasted, is just adding to the insanity of this Gov. but the Fed. doesn't seem to care, they just run the printing presses and make all the greenbacks they think they want or need. We are in uncharted waters because the Fed . and the Elected Pols. don't have a clue about how to run an economy ! "Just put it on the charge card !"
When will they ever learn ???
As individuals, we have to balance our budgets , live within our means, but the Fed. Gov. doesn't have that problem...if they need more money for personal "wants", they simply vote themselves a pay raise or print more dollars !!
Isn't America wonderful ??? Just wait a few more years and then you will then know that housing prices were cheap today as compared to what they will be in 4-5 years ! That's just for starters ! Fiat is coming out with a New Fiat 500 ,...a really,..REALLY,. tiny car, but that's all we will all be driving folks , or maybe a Wizzer bike !!!
Yeah,..we have some really brilliant economists folks ! LC

2007 Jul 11 06:25 PM