The U.S. dollar index goes all the way back to March of 1973. However this 30 year chart of the index shows how the U.S. dollar is holding up against a basket of currencies. It’s weighted against 6 currencies (Euro, Japanese yen, Great British pound, Canadian dollar, Swedish krona and Swiss franc).
Click on the chart below to see an enlarged version of it. You’ll find that the index has bounced off of 30 year lows and is heading higher for once in a very long time. Should the bounce continue, it could go some 1600-2000 pips upward before reaching any multi year resistance. That would be huge. This typically happens within 6-12 months historically. So if history repeats itself, we could be in for quite a surprise.
In the short term, the index has already broken some near term downtrend lines as it has rallied over 200 pips. While it still has some ways to go for sure..it’s the first signs of life the buck has had in quite some time.
In the GBP/USD pairing, it has brought the British pound down by over 1,100 pips. This is huge! It’s also brought the EUR/USD pair down by 600 pips. The buck has also rallied against the Canadian dollar (USD/CAD) by 1,000 pips. Yet no one is mentioning this stuff. It’s like it’s flying under the radar or something!
Now that everyone and their mama is on the short side of the dollar, the smart money (big interbanks and hedge funds) are covering their shorts quietly. They realize that the potential upside may very well outweigh the future downside potential in the index.
It’s much like the emotion at Nasdaq 5000. I couldn’t talk the friends or even fellow stock brokers out of selling their shares then. So I cashed out all of my stocks, stock options and 401k and watched it all fall.
I was able to talk some sense into a few people, but not many. When it’s a mania, you know you’re at or near a turning point.
Well history repeats itself….and we’re at another one of those emotional moments where people get adamant about being short the dollar. It’s at these times when it turns and it is a while before anyone notices.
This doesn’t mean the buck can’t have a pull back here and there or even trade in a wide range for a while…but it does likely mean the downtrend is over.
I’m sure this is one of the few places you’ll hear this from. I don’t try to be popular. For if I did the popular thing, I’d be broke. No, the professional has to think on their own unlike the masses that lose tons in the financial markets.
This bottom will take some time to complete more than likely but look for more upside potential in the buck than the downside potential.
So as Canada’s “Time Magazine” names the Canadian dollar as the “Person of the Year”…and the Economist puts the “falling dollar” on its magazine cover…it’s time for a change. The fall of the dollar has gotten too mainstream and now finally everyone is on board the short. That’s when it turns.