U.S. Dollar
April 10th, 2011WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
My U.S. Dollar Index analysis from 22 March remains in play. Here’s an update.
I expect a sucker bounce to occur sometime between the current level and 74.170, but that should be pretty short lived; days, not weeks. Tactical longside plays would be for actively managing pros only. For longer term bears, any bounce should just be a speed bump. The ascending line of the (broken down) bearish triangle is now a hard overhead resistance.
U.S. Dollar Index, Monthly Interval
Ok, so what happens if 74.170 breaks down?
A move below 74.170 sets up a re-test of 70.792 and a period of global financial panic. The analogy would be a driver taking a corner on an icy road too fast. Below 74.170, there would be an “Oh shit” moment as traction is lost and the car careens toward the cliff (70.792). The central banks will work together in an attempt to regain control.
My guess is that the breakdown of the monster bearish triangle (see chart) is a strong enough pattern to take out that hard pivot at 74.170, but I’m less sure about what will happen with 70.792.
You should know by now that I’m not one of these Chicken Little fast crash snake handlers that are predicting The End every five minutes, but I’d like everyone reading to know that 70.792 is a big deal. If the slide continues and 70.792 breaks down, that would represent an extremely serious emergency and probably the end of the current global financial system.
70.792 is a door to the unknown, so trying to guess what’s beyond it is pretty silly. But since a handful of you pay me to guess about things like this, I’ll try.
I’d say that capital controls, some kind of IMF SDR (Special Drawing Rights) ‘Global Reserve’ confetti bucks, and a global financial crisis management organization, like the IMF on steroids are possible. At a minimum, states will try unilateral capital controls in an attempt to prevent their currencies from disorderly appreciation vs. the toxic dollar. I wouldn’t be surprised if it comes to pass that secret contingency planning has been under way for this.
Let it suffice to say that below 70.792, the system will be very different and not in a good way. But let’s get down below 74.170 before spending too much time on trying to figure out what’s behind door # 70.792.
In light of what you’ve said before about interventions, comparing the chart above to the AUD/USD history makes a little more sense of what was to me the mystifying fall of the AUD in July 2008.
http://www.xe.com/currencycharts/?from=AUD&to=USD&view=5Y
I wondered at the time if someone knew the AUD would be on the rise due to increasing global competition for resources and gave the AUD a downward shove to create a nice entry point for themselves.
I’m…gonna go buy more silver.
Re. Silver
When I started hearing about these physical silver shortages in the US I called a Sydney bullion dealer and was told they were fine, plenty of stock, no problems.
Things have changed a bit since then. They’ve still got Aussie mint coins but there’s a six week waiting period to take possession of bullion.
Kevin,
Thanks for the heads up and the comment:
“You should know by now that I’m not one of these Chicken Little fast crash snake handlers that are predicting The End every five minutes, but I’d like everyone reading to know that 70.792 is a big deal.”
Guess its time to get the dollars out from under the mattress and spend them like there is no tomorrow.
And as to buying silver, I’m thinking the small coins to use as currency (if this dollar crash occurs) is the best thing to have. Good luck all!
Went down to my local Mexican bank and cleaned ’em out of their silver…all they had was 22 rounds. They were out last week when I went.
They probably don’t stock much, or maybe a few people wising up. When I came back, I noticed it blew through to $41.50. Its on.
If Hugo Salinas Price can manage to monetize silver, it would be great. At the rate we’re going, things are lining up to be great as well. I wonder if it’ll get high enough for me to trade it in for a house or something within a few years.
The fundamentals are just there…I’m ready for a crash, but I got a feeling that ain’t going to happen. I think they crashed silver back in the early 1900s as attempts were under way to monetize it in the US. I think it was JP Morgan? Hi ho Silver Liberation Army!
I’m probably just about the last person who’s not adding to a silver position these days. Whenever I’ve tried to buy something that has gone vertical, the results have been… not so good.
But, as Marc Faber says, it’s easier to identify a bottom than a top, and !wow! that has definitely been my experience in trading.
So, silver at $40, $50, $100, $200, $2000…
Shine on you wild diamond, but I’m continuing to hold the silver that I have left over from the $5 to $10 days and that’s it for me.
@Eileen
Re: 70.792:
If 74.170 breaks down, they are going to go to the bloody mat to defend 70.792 and try to get a rally going off of it. This is why I’m less sure about 70.792. On the one hand, it’s the cliff. On the other hand, if they can rally off of that, it will be the Mother of All Double Bottoms.
Got to correct the record: I said there was a 6 week waiting period (above) in Sydney on bullion but it’s actually 5 weeks and that’s only for 1kg bars due to their being in the process of changing suppliers. They still have coins and assorted other silver and other bullion in stock: 5kg, 15kg, etc.