Liar's Poker

Everyone is well aware of what's happened to the US Dollar, and the run-on effects on Gold, Silver and most other commodities. The recent up tick in the Dollar, and attendant gold weakness has left many traders looking for guidance about longer-term trends. This being the start of a new year and all, it seems a good time to add some historical perspective. There has been much frenzy in the general press lately, once it glommed onto the Dollar decline. That might lead a rational person to assume its time to bail on some of those $USD short trades. Granted, the arrival of the great unwashed to any market usually signals a coming top - whom else would the pros sell to? The frenzy is still in its very early stages, however. Much of the intelligent commentary we've seen about the US Dollar (other than from colleagues who would wince at being referred to as "mainstream") has been of the offshore variety. There has been an increasing focus on the strength of the Euro in the British and European press. Far from crowing about their American cousins getting their currency comeuppance, there's alarm in most of the comments. That's hardly surprising. Europe in general isn't known for its low cost base and high economic efficiency. The thought of a $1.30 Euro has to be making Euro zone producers pale. It's tough enough beating Dell's prices when the Euro was at $0.85, it's impossible at $1.30. Similar thoughts must be passing though the heads of other exporters who depend on the insatiable US consumer for their profit margins. A bit of historical perspective helps underscore this reaction. The chart above shows the US Dollar Major Currency Index since January 1, 1973. Most of the charts that get presented for this index (including many by us) only go back a year or two so that it's easier to spot and discuss short-term changes in direction and their trading implications. Short-term charts also serve to dramatize the recent decline in the Dollar. A multi-decade chart stresses a couple of important points. One is that, dramatic as the recent decline may be, the current level of the Dollar Index is by no means uncharted territory (though of course it is uncharted for the three year old Euro). We've added a horizontal line at the technically meaningless but psychologically important level of 100 to stress this point. It's plain that the Index has in ...

Je me connecte

---

J'en profite