Saturday, August 22, 2009

The Imminent US Dollar Rally

is another temporary respite from the coming storms for savers who choose not to play in the market casino. Ol' Uncle Buck will again rise from the dead and astound its critics and the commodity bulls. Now, don't get me wrong, this will be just another countertrend bounce. But I believe another wave of deflation is needed before we can get to the point of a currency devaluation/cyclical inflation. The US Dollar is sick, just like the global economy and global markets. Yet that didn't stop the global stock indices from embarking on a rip your face off rally that continues to test the resolve (and pocketbooks) of bearish market participants.

Markets don't move in a straight line. After an initial thrust from July 2008 thru November 2008, the US Dollar has been correcting for roughly 10 months now. A second thrust higher is needed to complete this correction and it may have already started. Again, please don't misunderstand my long-term stance - the US Dollar is in big trouble. But I still believe a strong rally in the Dollar is imminent and that it has probably already started.

When the Dollar starts rising significantly, stocks and commodities will be toast (again). Here's what I'm seeing in the charts for the US Dollar. First, the "big picture" view using a 15 year monthly chart:

Next, here is an 18 month daily chart of the US Dollar thru Friday's close:

Finally, here is an ETF of the US Dollar (ticker: UUP) with my attempt at an Elliot Wave count:

I don't know if this count is correct, but if it is, a significant thrust higher in the Dollar is dead ahead. I do know that the Dollar is bottoming on an intermediate-term basis, not topping. I also know that when the turn comes in earnest, it will end the rally in stocks, corporate bonds, and commodities. I don't trade currencies but for those dollar bears out there, take heart: I hold the bulk of my savings in physical Gold. I am talking about a countertrend rally of less than one year for a beaten down fiat currency relative to other fiat currencies. I think the Gold price will take an initial hit when the Dollar starts rallying but will recover quickly as the credit crisis intensifies.

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