Archives: 2007 September

Yet another all time weekly low on the widely watched USD Index was reached this Friday. The USD Index closed at near the low of the week at 77.69.

The poor Dollar really had no friends on Friday. The Euro traded in a hyperbolic curve all day and hit a new all time high of 1.4279 before closing the week slightly below the high at 1.4266. British Pounds were no less impressive closing at 2.0466.

The acceleration of the US Dollar downtrend has been pronounced ever since it broke the 80.0 level on the US Dollar Index chart. The danger from here is that of a complete collapse of the Dollar that would likely destabilize the world’s financial markets for some time to come.

Certainly as a forex trader one must go with the flow. That means selling the US Dollar every time it corrects a bit to the upside. If the trend is your friend a strong and accelerating trend is your best friend. While reactions within the trend are likely to be sharp they will probably not be too large and will likely not last too long.

For now selling the Dollar on any counter trend move will probably result in a profitable trade within a very short time frame.

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The widely watched USD Index closed this week at 78.566, which is a new all time low for the US Dollar.

The key for the Dollar this week was the Federal Reserve’s FOMC decision on September 18th to cut the Fed Funds rate and the Discount rate by 50 basis points. The Fed might as well have hung a big flag over the entrance to the Federal Reserve Bank building with the words “we don’t care how low the Dollar goes” painted on it in bright red.

The Dollar is fast losing its friends in the world. The danger of a sudden Dollar collapse is real. The US will find that deficits do matter and that a nation that can’t control its spending, even one as powerful as the United States, will suffer the consequences of mismanaging its financial affairs.

A host of nations, including Russia, China, Japan, and Saudi Arabia are now quietly allocating additional percentages of their foreign exchange reserves away from the Dollar. The position that the US has enjoyed since the end of World War II as the world’s premier reserve currency is drawing to an end.

Americans can expect that their living standards will fall along with the fortunes of the Dollar. There is , in my opinion, little that can be done now to avoid a rapid, destabilizing decline in the value of the Dollar over the next year.

In fact with the US Dollar Index closing at a record low this week the process is likely already underway.

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This morning in early Europe trade the USD was attacked by foreign exchange traders right across the board.

After closing below 80 and an all time low earlier this week in the widely watched USD Index Dollar weakness was apparent. London traders took little time in pushing the Euro above the psychologically important 140.00 level to yet another all time high. In early New York trade the Dollar has fallen to about 1.4050 Euros.

The Canadian Dollar was one of the leaders in the onslaught. One to one parity with the weak USD is only about 15 pips away as I write. As a resource rich currency the Canadian Dollar will likely continue to gain ground on the US Dollar. Even later today we may well see the Canadian Dollar reach parity.

The 50 point rate cut by the Federal Reserve this past Tuesday in the discount rate and the federal funds rate was all the forex markets needed to renew USD selling. Look for continued and likely increasing pressure on the USD to continue for quite some time.

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The Euro Dollar surged to as high as 139.89, an all time high against the US Dollar, after yesterday’s US Federal Funds and Discount Rate cut of 50 basis points, the Euro remains firmly in the 139s. As I write the Euro is at 139.65 and looks to be gathering strength for a push for 140.00 and perhaps well beyond.

The unexpected cut of 50 basis points, most market analysis were expecting a 25 point cut, has cut the legs out from underneath the Dollar, at least for the short term. With the US Dollar Index level of 80 being broken it certainly looks like the course of the Dollar will be downward for some time to come.

We have not reached a panic stage of any sort yet so I expect that the downward move for the US Dollar and the upward push for the Euro has some distance to go. Should the US economy enter into a recession that distance may become very far indeed.

For now trading Euros from the long side looks to be a good bet. As we are moving into uncharted territory the price action is likely to be choppy as the market adjusts to all time high levels but the trend is certainly up for the Euro against the US Dollar.

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The long awaited decision from Ben Bernanke and the Federal Reserve FOMC meeting was released at 2:15 PM this afternoon. The Fed in it’s infinite wisdom and with more than a touch of panic cut the Fed Funds Rate by 50 basis points as well as a 50 point cut in the Discount Rate.

Ben’s Wall Street friends certainly liked the Fed’s decision as the Dow rallied more than 100 points in a matter of minutes and is currently up about 246 on the day at about 13,650.

However, this was probably the last push that the US Dollar needs to go right over the edge. A Dollar collapse will not in the long run be good for anyone in the US , including the Wall Street gang, but from today’s action seems to be underway as I write.

Just as inflation is making a huge comeback Ben Bernanke and company signals in a big way that it is of little concern. In order to try and prop up a faltering economy the Fed has signaled that it will pump out increasing amounts of money at lower rates. This may well help to prop up the housing market for a short time but don’t bet on it.

The round of ARM resets coming up in October and through the middle of 2008 will in my view swamp the Federal Reserve action taken today. A few million more Americans are going to be facing much higher monthly housing mortgage payments just as inflation kicks in. It will be a grim situation.