Ye Olde Retirement Account:
Update re Dollar’s slide
NOTA BENE: None of this is sophisticated thinking. Just musing aloud over the Sunday Times …
Seems an update’s in order re recent hesimeditations about whether the dollar’s slide is over.
The G7 finance peeps the other day barely peeped about the weak dollar. Something of a surprise, to find them so supine.
This encourages one to think — after a month of low visibility — that the dollar will continue to slide. Perhaps even abruptly. And that gold, therefore, will indeed hold the $1000 mark and now shoot for something higher.
THEN AGAIN:
1. If our current wars — on each side of Iran — were to enlarge as a result of the latest contretemps, it could push people to the dollar anyway, seeking safe harbor.
But … The recent Iran story was mostly about public perception, in that the Western powers and Israel had the intelligence on the underground site before. Some heightened visibility perhaps …
But the talks with Iran last week were apparently net positive, and it seems best guess that the Western powers will try to build on them, rather than set things afire anew.
2. And it will be interesting to see how the Irish vote on the Lisbon treaty will effect the Euro-Dollar trade. Centralization, at any given moment, can cut either way, I suppose.
European manufacturers consider $1.50 (per Euro) a line in the sand of sorts: they don’t want the Euro to cross it. Currently roughly $1.47.
If it jags to $1.50 this week in the wake of the G7, the big question will be how stiffly the Euro banks will come in to protect it (by buying dollars).
So maybe, to be conservative: If that $1.50 line gets decisively crossed, tested and holds … There is no telling how far the dollar may fall, or how high gold (in dollars) may rise.
That’s the DXY index, which measures the dollar against a basket of six major currencies. Dollar bulls in August said 78 was the bottom. Past two weeks were thinking 76. Now … Perhaps destined to test that old 72 level, sooner than later.
But who knows?
ed says:
Here’s a chart (at Minyanville.com) of the S&P 500 that nicely shows the worry as we slide into spooky October.
Whether the white downtrend line that marks the great decline since Oct 2007, or, rather, the shorter uptrend line rooted in last Thanksgiving, shall prevail as the index approaches the intersection of the two lines …
That’s the question.
If the dollar continues weak — as it is, today, Monday — it tends to help stocks, for reasons having to do with int’l trade (for companies that sell stuff overseas) but also as a matter of exchange. Ie, the cheap dollar draws foreign investors, generally speaking.
Anyway. Weakness in the dollar, if it continues, would help the SPX crack thru that white downtrend line, instead of bouncing back down off it.
But we are in October, after a long strong run up. Spooky Halloween.
October 5th, 2009 at 2:38 pm