Rick's Picks
April 11, 2008
Phenomenally accurate forecasts
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Dollar's Respite…Near an End?
Considering how steeply the dollar has fall in recent months, we might have expected more of a bounce when the selling finally let up. Instead, since mid-March, we’ve gotten a rebound so feeble that, on the daily chart (see below), the Dollar Index has yet to exceed even a single peak recorded on the way down. To put this weakness in perspective, and based on our Hidden Pivot rules, it would take an unpaused surge surpassing at least two “external” prior peaks to even hint of an important trend change. That would imply a print at 73.96 in this instance – roughly 2.5 percent above yesterday’s settlement price. That might not seem like much, but considering how sluggish the rallies have been lately, it might as well be the Matterhorn. We should also note that on recent days when the dollar has fallen, it has tended to reach or even slightly exceed the targets of minor-cycle declines. If it were about to turn around, we should have expected these declines to fall short of their targets, and for rallies to exceed theirs.
Is the dollar’s flatulence indicative of more weakness to come – or is it simply taking its time to build a solid base for a powerful and long-lasting rally? We incline toward the first explanation and expect the dollar to resume its decline in earnest by no later than mid-May. But we’d have to concede that this hunch is based mainly on our inability to imagine any fundamental change in the forces that have been weighing on the dollar for so long.
The Good Old Days
In the good old days, prolonged weakness in the dollar made American exports more attractive, bolstering global demand for the dollars needed to buy them. That is still true, but to a significantly lesser extent. Many countries once threatened by famine, such as India, have become major exporters of grain. And auto-manufacturing has become so completely globalized that it will be difficult if not impossible for the U.S. to become competitive once again. Adding to the pressure on the dollar was yesterday’s decision by the European Central Bank to hold interest rates steady.
Under the circumstances, it is not enough to say that the dollar will strengthen simply because “everyone” is bearish on it and because it is long overdue for a bounce. True as both of those statements might sound, they offer no assurance that even more extreme imbalances will not be seen in the future.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
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