So far the buck has handled all of these new "all time highs" from oil and gold quite well. It has to fight falling interest rates too.
So while the buck may end up retesting its lows at some point...ya gotta hand it to the buck for holding up under a 3/4 point surprise rate cut and high commodity prices.
So the buck isn't going to see a repeat of the last several years. It will either trade somewhat sideways in a very wide range this year...or it will break its downtrend at least for this year.
Keep in mind that in major bear cycles, there are still up years were a currency can rally upward and still stay within an overall downtrend.
So just because the major trend has been downward, don't be fooled into taking a permanent one way bet against the buck like it doesn't have the ability to rally.
Remember that the Euro went from 1.36 down to 1.18 on the last downturn...so that would equal the dollar rallying then and we could see it happen again as the Euro struggles with 1.50. That's a high level to hold.
Personally I don't think it can hold it for long. Sooner or later, Trichet will have to get off of his "inflation fighting" high horse and get real and reduce rates because of a coming slow down that will affect the Euro Zone and the global economy.
Europe isn't as detached from the U.S. like many would love for you to believe. The world becomes more intertwined as the years go by. We do more international trade between each other as the speed of transportation and technologies improve. That will not change...so we'll be more intertwined as time goes by all the more.
So when the U.S. sneezes, most of the industrialized world catches a cold. This was the case even before many of the Dow stocks had international operations...so you know it's true now that they derive much of their profits from their overseas operations. There's the proof that we're intertwined.
So don't believe all of the "de-coupled" crap. It's a smelly load for sure.
So look for more countries to lower their interest rates. This will help buffer the buck's fall. Look for the ECB to start cutting rates at least by the latter 1/2 of the year. Then look for Australia and New Zealand to eventually cut rates thereafter. They will probably be the last to have to cut interest rates since their data is still coming in quite a bit stronger.
In the mean time, give the buck some love and atleast acknowledge it's short term resilience.
Sean Hyman
Editor/Trader
www.money-trader.com
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