Sunday, April 24, 2016

End of US Dollar bull market?

As the above chart shows, the US Dollar Index has broken key technical support.  This indicates that the topping process illustrated by the horizontal purple line may be coming to an end.  Indeed, this explanation jives with what we have witnessed the past weeks and months in financial markets.

Stocks and commodities have been rebounding from their depths back in February.  As one trader on CNBC noted, "Everything made sense back then [two months ago] - oil was down, stocks were down, gold was nothing makes sense".

Nothing makes sense from any fundamental or technical perspective, yes.  Yet from a currency perspective, it's all very simple.

A sharp decline in the dollar's value (which means its value relative to other fiat currencies, because fiat currencies have no intrinsic value by nature and as such their value remains a matter of pure subjectivity) would lead to a levitation of all dollar-denominated assets.  So while it appears everything has been rising....the dollar has been falling, causing asset prices to be denominated in higher nominal terms.

Dr. Paul Craig Roberts has often referred to the three massive bubbles of our time: the dollar, the stock market, and the bond bubble.  If the dollar bubble bursts first, they all go.  And as this very early phase of what may turn into a longer-term trend continues....that outcome becomes more and more a real possibility.

No matter what, it appears that central banks remain determined to prop up asset prices at all costs, and to prevent any sort of financial losses from happening on paper.  Keep the %1 happy by showing them large numbers in their asset valuations, and throw the masses populist puppet candidates in politics to occupy themselves with.  That appears to be the strategy here.

It only works until it doesn't.  With every prolonging of the inevitable, the final fall from grace only ensures itself to be more epic.

Speaking of epic, Janet Yellen's recent meeting with the President was historic.  The last time that happened?  Just before the housing crisis of 2008.  Imagine that.

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