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Don’t Be Fooled, The U.S. Dollar Index Will Be A Lot Stronger A Year From Now

Don’t Be Fooled, The U.S. Dollar Index Will Be A Lot Stronger A Year From Now thumbnail

As many traders and investors know, the U.S. Dollar Index (DX) broke out in September 2014. At that time, the U.S. Dollar Index was trading around the $83.00 level. Today, the U.S. Dollar Index is trading around $96.90 per contract. Just so that new readers understand the U.S. Dollar Index is a measure of the value of the United States dollar relative to a basket of six foreign currencies. These currencies include the Euro, Japanese Yen, British Pound Sterling, Canadian Dollar, Swedish Krona, and the Swiss Franc. The Euro is the most heavily weighted currency again the U.S. Dollar in the index at 57.6%. That is why the U.S. Dollar Index chart and the EUR/USD (Euro vs U.S. Dollar) chart look inverse to each other.

Many people in the investing world worry that the strong U.S. Dollar Index will hurt global exports. Well, the truth is that they will hurt global exports for the United States. However, the strong U.S. Dollar index will help to keep commodity prices low. Just look at a chart of crude oil and you will see that it has plunged as the U.S. Dollar Index has strengthened. You see, most of the oil in the world is priced in dollars and in order to buy a barrel of oil you must use U.S. Dollars. So it is safe to say that the strong U.S. Dollar is the primary reason for the decline in crude.

Many people think that the U.S. Dollar Index is rallying higher since 2014 because it is a good currency, but that is not the case. The U.S. Dollar Index is rallying because other central banks around the world such as the European Central Bank, Bank of Japan, and the Peoples Bank of China are printing money in one form or another. This is causing investors abroad to flee other currencies and buy U.S. Dollars. This action by foreign investors is unlikely to change anytime soon. Now let me be clear, the U.S. Dollar Index is not going to surge higher in a straight line, that is not how markets operate. The trend in the U.S. Dollar Index should remain up despite having some pullbacks along the way. The current large pattern on the U.S. Dollar Index chart signals a move to the $105 level and possibly higher. Now a Federal Reserve interest rate cut could cause the U.S. Dollar Index to retreat, but it is likely that other central banks around the world would also print more money to counter that move. So either way, it is going to be difficult to find a reason at this point in time for sharp dollar decline. The bottom line, the U.S. Dollar Index should be a lot higher a year from now.

Nick Santiago

InTheMoneyStocks

inthemoneystocks.com



4 Comments on "Don’t Be Fooled, The U.S. Dollar Index Will Be A Lot Stronger A Year From Now"

  1. makati1 on Sat, 27th Feb 2016 8:19 pm 

    I think the headline is wishful thinking by the author. Who can predict even tomorrow? No one can predict a year from now. Another ad by a money changer to get a paycheck without an honest hours work.

  2. twocats on Sat, 27th Feb 2016 8:55 pm 

    The current large pattern on the U.S. Dollar Index chart signals a move to the $105 level and possibly higher. Now a Federal Reserve interest rate cut could cause the U.S. Dollar Index to retreat, but it is likely that other central banks around the world would also print more money to counter that move. So either way, it is going to be difficult to find a reason at this point in time for sharp dollar decline. [article]

    so he’s a technical chart analyst (the worst form of useless) and throws in a bit of macro just to seal the deal. From what I can tell (glancing at the news), the G20 did not put forward a coherent plan to print a lot of money, so expect oil price to fall and the markets to throw a fit on Monday.

    if this situation continues?

    http://www.fool.com/investing/general/2016/02/27/can-chesapeake-energy-avoid-bankruptcy.aspx?source=eptfxblnk0000004

    he talks about low commodity prices so casually, while in the halls of the Energy Companies (and perhaps the banks and investors backing them) the Death Bell is ringing. will it create a margin call too large to cover?

  3. Davy on Sun, 28th Feb 2016 6:14 am 

    The dollar like oil has a range that is healthy for global economics. That range has been compressing like oil. This is a sign of systematic volatility and unhealthy fundamentals. Global debt, deflation, and malinvestment must be paid for eventually.

    Currencies are a zero sum game in the current global economy. There are isolated winners or losers but no nation are winners. It is more like global currency destabilization is a negative sum game. In some circumstances some nations are hurt more than others but this eventually comes around to hurt all economies. Rarely can economic contagions be decoupled from longer term.

    It was not too many months ago that the death of the dollar was all the rage. China was the new Phoenix rising. China is the center of the latest currency crisis and China’s existential crisis has just begun. It will be China’s coming economic crisis that will be extremely destabilizing from an already fragile global economy. It is surely going to cause some serious dollar issues.

    This will certainly damage the US beyond recovery. The US markets have the furthest to fall since they have not moved into a significant correction yet. What else is there that offers optimism in the US? I want to know how consumer confidence will be when the US markets halve? How many people with money will want to spend money once their retirement has been gutted? We are all going down the drain together but there will be a line to wait in.

  4. Davy on Mon, 29th Feb 2016 6:14 am 

    “Crisis Progress Report, by Robert Gore”
    http://straightlinelogic.com/2015/01/29/crisis-progress-report-by-robert-gore/

    “Robert Gore’s Command and Control Futility Principle, the chief implication of which is that regardless of what variable or variables a government or its central bank attempts to control, all variables cannot be controlled exactly, at the same time. A corollary of this principle: due to the impossibility of controlling all variables, they will usually lose control of even the variable or variables they have attempted to control. The more they try to control, the less they will ultimately end up controlling.”

    “The principle is playing out; the inability to control all variables is becoming increasingly evident. Total global debt has reached a saturation point, it no longer produces positive economic returns and economies are weakening under the burden of debt service. The reduction in demand and price deflation has hit heavily indebted commodity producers, who must continue to produce as long as their revenues cover cash costs. Commodity prices have crashed although the world economy is saturated with central bank created liquidity.”

    “Commodity producers’ reduction in revenues and lower prices pressure both governments and their central banks. Heavily indebted governments receive less in tax payments, and the deflationary impetus of lower commodity prices increases the real burden of their debt service. Central banks must suppress interest rates and buy governments‘ debts to promote governments’ financing efforts, while trying to increase inflation to reduce the real burden of debt service.”

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