U.S. Dollar Forming A Bubble
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The US Dollar’s strong rally that started last July hit a resistance line, that dates back to the 1980’s, which so far looks to have stopped its strong upward progress.
Has the US$ formed a bubble? Humbly, I don’t think that is the issue. What the US$ does at this 30-year resistance line could be very important for next big move in the Euro, Pound and Aussie dollar.
Traders have accumulated a massive long position in the US$ and if it starts going against them, many would find themselves on the wrong side of this trade.
This chart was shared with members on 3/31. It reflects that the US Dollar at that time had created a reversal pattern, while hitting resistance.
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The table looks at what the US$ has done going forward, after creating a reversal pattern after a strong gain. As you can see, most times this was NOT a good time to buy and hold long the dollar.
One sector that could do well if this is an important high in the US$, is the metals complex.
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The only reason that stops the US dollar from rising is our central bank and government which dumps liquidity to their constituents at the cost to those actually holding capital. Of course they play this off as screwing China, but in reality Americans hold the most US capital and it's its citizens they are screwing more than anyone else.
The other argument is a soft dollar is good for exports. Although this may be true, it is bad for imports which we do much more of than exports. It is also meaningless when so many countries we trade with peg to the dollar or simply duplicate our easing methods. Even Europe now is playing the QE game. The reason the dollar looks so good now is not the fast economic growth here. It is because countries have realized the US can't easily ease as much as others since it has already floored interest rates, engaged in QE to the point of it becoming even ineffective short term, and already runs massive deficits.
The issue is if the US eases much more they'll not just make the US dollar loose value, but they'll be messing with the credibility of their capital market.