Asbytec

Memories Are Short, Trends Are Strong: Still Bullish on the Dollar

I, too, am dollar bullish and have been for quite a while (index back in upper 70 territory) despite Fed liquidity injections. The dollar has lost over 30% of it's value over the last few years. It's due for a rebound. Here's why.

My understanding of the credit crisis leads me to believe our money supply is winding down, though I have not seen any figures (up 38%?) Credit is tight and Chinese exports are down. Less dollars are finding their way into the forex. Dollar based safe havens are all the rage, and hedge fund pay outs have a long way to go, yet.

I perceive a long and deep recession coming. Continued market volatility will provide some emphasis on dollar strength, as the author points out. And I see volatility well into 2Q, possibly beyond. The Fed rate is 1%, there is not much room for further cutting and still the markets have not shown many signs of strength.

The euro and the GBP have clear downward trends. The pound is currently in the $1.52 level, the euro at $1.25. Both have continually broken their support levels. Who would have thought that? And the Euro Zone is probably going to ease further as this recession begins to really hit hard next year...maybe through all next year.

The dollar index is again over 87, as of this writing. I read somewhere if it broke resistance at 86, then the trend will become firmly bullish. That has happened.

Lastly, Obama is probably going to advocate a strong dollar policy.
www.guardian.co.uk/bus...

So, I can think of many reasons to be bullish on the dollar, and fewer reasons not to. Though, the dollar will peak sometime. When? Why? And what signs will tell us? Those are the questions. I suspect not for a long while.