YE$, The Dollar Gets Interest-ing

Keep watching the Dollar.  We have reported how central banks have been shifting to a basket of currencies, predominately the Yen, Euro and Dollar (YE$), rather than the Dollar alone as the reserve currency, here and here; but now the shift is accelerating.  This will force the Fed to protect the Dollar, and raise rates.  The dramatic market shifts worldwide reflect this expectation.  And they have been dramatic - many markets have crashed, all are seriously down.  The Dollar has bounced a bit off its recent low in the Dollar Index, but has not yet made a run up as EWI and a few other ewavers have been expecting, and remains at risk of turning down and falling faster than the Fed (and other central banks) can prevent.  Indeed, behind the scenes it appears a lot of pressure is being put on the US to rebalance - borrow less from abroad, increase domestic savings, protect the Dollar. 

Comments

[tony caldaro]

HI Yelnick!
Yes, the Dollar looks fairly weak, and at the low of second waves everyone is usually bearish. Just as they are now.
Expecting a retest of the lows in the Dollar, with positive divergences, and then a major rally.
Remember, at the beginning of the year everyone was bullish on Bonds. The waves suggested otherwise.
The ECU was a failure, the ACU will be a failure too.

[yelnick]

Tony, EWI has the Dollar going the opposite of stocks, commodities etc. Hence a Dollar bounce would mean continued stock market fall. (At some point this relationship breaks and both fall.) Since you are still bullish on stocks - this is but a 4th wave pause in your count - do you expect a Dollar bounce along with Dow bounce? And if so, do you see the Dollar getting to 100 in the Index (from ~84 now)? Or, does the Dollar bounce coincide with the wave 4 correction in the Dow?

[tony caldaro]

Hi Yelnick,

The Dollar bottomed in Dec '04 and rallied into Feb. Then it bottomed in Mar '05 and rallied with the market into July '05. Bottomed again in Sept '05. and rallied with the market into Nov '05. I do not see the counter relationship EWI infers.

The current correction arrived after five waves up were completed from the Dec. '04 lows.

The bounce I'm referring to is short term, and a restest of the lows is then probable. If it sets up the pos. div. I expect, the next rally should be the start of another major five waves up and should take months to unfold.

[rc]

ST buy (still a MT and LT sell) on the RUT (as of 5-19... am posting after the fact). Watch out for a post Memorial Day bounce on Tuesday. I haven't studied this on the charts, but have seen this repeatedly... a down or flat market springs up after these 3-day holiday weekends. Anyway, looks like we have several more up days... into next week... then a resumption of the downtrend... and then we can see whether we're into a more substantial bounce or further selling.

[EN]

The last several trading days in the US markets are an expanding environment - likely an X Wave Triangle. So, it does not surprise me to see everybody getting bullish again, probably try to buy a supposed B wave pullback on Tuesday only to get stopped out in the next leg down. Each new high has been a sell and each new low a buy, thus ultimate whipsaw. But has anyone heard of a correction lasting 2 weeks? If you think this thing is headed for a retest of the highs anytime soon you gotta another thing coming.

[skierwaver]

The sentiment picture is bullish for the USD. Commercials are long the Dollar and short the Euro, the Australian Dollar, the Yen and some other major currencies. Speculators large and small maintain the opposite stance.

From an EW point of view, the rally from the Dec 2004 low was a five-waver, and the decline, albeit significant, is still a "three" (with the 2nd leg down so far measuring just under 162% of the first). Worries about the future weakness - and even about the very survival of the US Dollar - abound, which goes along nicely with the psychology one would expect near Wave 2 (or B) lows.

[Crash Imminent]

Elliotteer broadcasting from his underground bunker...

http://www.urbansurvival.com/insideeplus.wmv

[rod]

How 'bout these crazy market? Gentlemen, I think we're in for some smooth sailing now. Probably go up or down a percent or two, but no major moves through the end of '06.

[tony caldaro]

RC wrote; "Anyway, looks like we have several more up days into next week then a resumption of the downtrend." Good call! But only see a retest of the lows by month's end.

EN wrote; "If you think this thing is headed for a retest of the highs anytime soon you gotta another thing coming."
Guess we have another thing coming. Retest and then resumption of the BULL market.

Skierwaver wrote; "Worries about the future weakness - and even about the very survival of the US Dollar - abound, which goes along nicely with the psychology one would expect near Wave 2 (or B) lows." Perfect assessment of a wave TWO low, and we have the exact same EW count, Cheers!