US Dollar Collapse Unlikely: Rising
Dollar In The Short Term
The Dynamic Wealth Report
November 26, 2010
by Justin Bennett, Editor
There’s been a lot of talk about the death of the U.S. Dollar
lately.
Ben Bernanke’s seemingly endless money printing campaign may indeed
spell doom for dollar holders in the long run. In fact, some investors
are convinced the dollar is going the way of the do-do bird.
Famous investors Jim Rogers, Marc Faber, and Peter Schiff think the
dollar is eventually headed down the economic toilet.
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Judging by recent currency trading action, they may be right…
U.S fiscal uncertainty put the greenback under pressure for most of the
summer. The U.S. Dollar Index has been sliding steadily from June all
the way through early November.
But that’s just part of the story…
The falling dollar has pushed commodity prices skyward. Precious metals
are surging and oil was pushing $90 not long ago. Since the dollar is
the reserve currency, nearly everything priced in it has seen quite a
jump.
Given all the negative news, one would think a dollar collapse is
imminent. Such a scenario would send the price of nearly everything into
the stratosphere in a matter of weeks.
But don’t go running for the hills just yet…
The rug may get pulled out from underneath the U.S. Dollar bears.
Why?
The debt problems in Europe are coming to boil again. Ireland is
begrudgingly accepting a bailout and now Portugal and Spain are coming
into focus. The whole situation is a nightmare for the European Union.
The last time we saw this type of stress was when Greece was on the
ropes. In early 2010, there were fears of Greece buckling under debt
pressures. The news sent the Euro plummeting downward for months. Of
course, this sent the U.S. Dollar surging to the upside.
Are we about to see a big break higher in the dollar?
If you take a look at a monthly chart of the U.S. Dollar
Index, you’ll
see something interesting…
Take a look at the green trendline. This is a rising support zone the
dollar has reacted off in the past. Notice how the dollar is finishing
strongly to the upside in recent weeks (blue circle).
We saw the same thing in December of 2009…
You can see what happened the last time the dollar hit this support
area. It went up for months and made dollar bulls some nice returns. Meanwhile, the bears were sent into hibernation licking their wounds.
We may be in for another big dollar rally…
The technical picture, along with another round of European debt stress,
could send the dollar skyward.
How far could this rally go?
The rally may take us up to the red trendline resistance at the 86 area.
This is an area where sentiment shifts to the downside for the dollar.
You can see how it reversed lower at the red trendline in the past.
The bottom line is this…
There’s no doubt the dollar has some long-term problems. The famous
investors I mentioned earlier may eventually be proven correct.
But don’t let all the negative hype confuse you in the short term… the
dollar isn’t done just yet!
• Spectra Energy (SEP) was
upgraded to neutral from sell by UBS. The natural gas pipeline and
storage company has a yield of over 5%.
• Deutsche Bank put and initial buy recommendation on
Millicom International Cellular (MICC). The company operates
cell phone networks in 14 countries.
• WBB Securities downgraded Cantel Medical (CMN)
from hold to sell. Their downside price target is $16.25.
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