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The diving dollar
Tuesday, July 10, 2007
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 earlier today at just over $1.37 and even the yen strengthened against the greenback. The Bank of Canada raised interest rates this 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?
3 comments:
Wow. We just got back from a hike. It looks like today was a great day to own commodities (not the shares) and foreign currencies.
It looks like Ben didn't help:
"The major indexes fell during Mr. Bernanke's speech before the National Bureau of Economic Research in Cambridge, Mass., and turned even lower during a question-and-answer session at the end of the speech. Analysts and traders saw little in his comments that might have moved stocks -- but he also offered little encouragement for a market searching for signs the Fed might soon start lowering interest rates."
You don't need a fancy computer model for when the dollar busts through 81; just sell. :o)
This too:
"China, which has the second largest holding of U.S. Treasurys behind Japan, sold $5.8 billion of notes in April — more Treasury securities than at any time in the past seven years, according to recently released data from the Treasury Department. “Interest rates are trending higher, and there’s a growing concern that our trading partners, who represent the largest Treasury buyers, are beginning to lose interest in our debt,” Jack Ablin, chief investment officer at Harris Private Bank, said in a recent note. “China, whose foreign reserves reached $1.2 trillion in March, along with other Asian and oil-exporting nations, may be satisfied that their current reserves are adequate to meet their liquidity needs and that incremental reserves can be diverted into higher-returning assets denominated in other currencies.”
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