Markets Recover Some Losses, While Eyeing Georgia

Any time the U.S. Dollar rallies, it is simply “fool’s gold.” Since I started doing these newsletters about a month ago, I have consistently said that any minor rally the dollar would experience would be a mirage. Since the dollar briefly pierced the 91-level on Dec. 9, it has fallen over 1.8%. Despite the dollar experiencing another mini-rally and nearly piercing the 91-level again on Dec. 22, I remained steadfast in my bearish outlook of the dollar.

Since the open on Dec. 23, the U.S. Dollar has declined another 1.25%. I believed the dollar would drop back below 90 before the new year, and here we are to start off 2021 with the dollar at 89.41. Since hitting a nearly three-year high on March 20, the dollar has plunged nearly 13.8% while emerging markets, foreign currencies, precious metals, and cryptocurrencies continue to strengthen. Gold, for example, reached an eight-week high on Jan. 5.

On days when COVID-19 fears outweigh any other positive sentiments, dollar exposure might be good to have since it is a safe haven. But in my view, you can do a whole lot better than the U.S. dollar for safety.

I have too many doubts on the effect of interest rates this low for this long, government stimulus, strengthening of emerging markets, and inflation to be remotely bullish on the dollar’s prospects over the next one to three years. Meanwhile, the US has $27 trillion of debt, and it’s not going down anytime soon.

Another headwind to consider for the dollar is the Georgia Senate election. If Democrats sweep, there could be more aggressive stimulus in the near term. With Democrats controlling both the House and the Senate, more stimulus could be bearish for the dollar.

Additionally, according to The Sevens Report, if the dollar falls below 89.13, this could potentially raise the prospect of a further 10.5% decline to the next support level of 79.78 reached in April 2014. With the dollar at 89.41, we are coming dangerously close. The dollar’s RSI is also nearly oversold once again and is trading significantly below both its 50-day and 200-day moving averages.

For now, where possible, hedge or sell USD exposure.

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Disclaimer: All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be ...

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