Apart From the Crowd - Issue 5 - November 23, 2009

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A part From The Crowd

IS THIS JUST A FALSE BOTTOM IN

THE U.S. DOLLAR?Whether The Dollar Will Rally and End The Rally in Risk or Continue to Decline

It is well known that the U.S Dollar (“USD”), the world’s reserve currency has been declining of late.

Generally, the recent discussion surrounding the USD has been focused on the apparent reality that as the

USD declines, equities, and any other asset denominated in the USD, such as commodities, will rise.

This concept has been reinserted into the collective psyche of investors due to the large snap-back rally

experienced in the equity and commodity markets since the meltdown of 2008 came to an end – though

perhaps only temporarily. Of course before the collapse, the USD made an all time low near 70.00 as

measured by the Dollar Index (“DXY”), right along with the spike top in commodities in general in the

Annotated Charts and Commentary on The Financial Markets By David L. Singer | November 23, 2009 | Volume 1 – Issue 5




summer of 2008. As the Lehman collapse and other nerve shattering events unfolded, the USD rallied, asdeflation kicked in and a f light to quality ensued. Commodities and equities both fell off a cliff.

As the bounce off the bottom has gained strength, calls for the demise of the USD have echoed

throughout the investment world. Of course, the massive fiscal deficit, bailouts, and expansion of the Fed

balance sheet have lead many to assume that the only way to get out from under the massive debt will be todevalue the currency and the only question is will the decline be orderly? After all it seems true that it is in

the politicians best interest to devalue the currency and inflate the debt away. Even with this negative

sentiment, the fact is that during its recent decline, the USD has not reached the low levels that it reached in

the summer of 2008.

With the calls for the demise of the USD growing louder, another voice, though of less magnified

quality has been calling for the strengthening of the USD. This is largely based on the calls for continueddeflation, a drop in equities, and a f light to the USD’s safety, amid the next phase of the ongoing implosion

of the credit bubble. This investment thesis is exemplified by the recent writings and comments by Bob

Prechter of Elliott Wave International.

So? Which is it? These are diametrically opposed outlooks. Only time will tell.

In the meantime I have looked at the recent performance of the USD according to the DXY to see what the

chances are of the USD continuing its decline to challenge the 2008 lows and perhaps even break them.There was a lot of talk recently focusing on the fact that the USD made new lows for the year on the DXY.

The DXY is calculated based on the performance of the dollar as measured against a basket of currencies.




However, in recent days the USD has rallied somewhat and those who think a decline in equities is cominghave become emboldened by a little bit of strength in the USD. Personally I have thought that we would get

a USD rally for some time now, largely based on the overwhelmingly negative sentiment coupled with the

fact that we are still well above the 2008 lows.

In order to examine just what the USD has been doing lately as compared to other world currencies, Ilooked at some shorter-term USD charts. What I noticed was that he USD did not make new yearly lows as

priced as compared to a number of individual currencies, whereas the DXY has.

Japanese Yen

Swiss Franc




Singapore Dollar

Ruble




Danish Krone

Norweigen Krone




Colombian Peso

Mexican Peso




Korean Won

Indian Rupee




British Pound

Euro




Canadian Dollar

Conclusion

My conclusion is that the USD may stealthily be getting stronger than some USD bears believe based upon

the divergence of the USD as reflected in the DXY and the USD as reflected as against a number of

individual currencies. We could be seeing the next leg up in the USD and the end of the equity and

commodity rally off the meltdown lows.

However, I would not be as sure as some of those who see the USD rebound as a foregone conclusion or the end of the rally in stocks as a lock for that matter. My worry comes from the fact that the USD has

already tried to put in a bottom earlier this year, trading sideways, but then continuing lower, after finallycrashing through support. Same with the equities, where the rally was supposed to have been over a couple

of times already.




The good thing is, that if you are bullish the USD and bearish equities, you can get in here and set up

rather tight stop losses to mitigate your damages in case you are incorrect. It looks like the USD has

support at its most recent lows whether in the DXY or as against various individual currencies. To be sureyou are right, the long USD trade must break out of the sideways range that is currently being established,

just as the equities must fail to make new highs and eventually break down until one can declare the bears

back in charge.

Disclaimer: The analysis contained herein is produced for informational and educational purposes only. It

is my opinion and is currently produced free of charge and may be shared and distributed to anyone

interested in its contents provided the proper attribution is credited to the author and that no commercial useis made thereof.

Thank you for taking the time to look at my work. Please feel free to send constructive questions and

comments to: [email protected]. You can visit me on the web @ SINGER$MARKET –

http://singerprofitcharts.blogspot.com, where I post annotated charts and have links to various websites and blogs I find informative and helpful in conducting basic financial market research.

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Apart From the Crowd - Issue 5 - November 23, 2009