Saturday, December 13, 2008

dollar woes

By closing below the Nov. 25th low the dollar has now completed the 1-2-3 reversal I've been watching for. We now most likely have an intermediate term decline starting. We need to correct the parabolic move out of the July lows.

As we can see on the weekly chart that rise is now starting to fail. Parabolic moves are never sustainable and they invariably end in collapse. This one certainly looks like it's going to be no exception.

I'm already starting to hear comments in the media and especially from the gold bugs that the dollar is toast and the run is over. If this parabola had occurred at the end of a multi year rally then I would be inclined to think this was indeed an ending pattern. However this move came out of a severely depressed multi year bear market. This is more likely a beginning pattern and not an ending pattern.

The rally in the dollar is due to one thing and that is deflation. That process is hardly over. I dare say it's just beginning. Once this correction has run it's course the odds are that the dollar will turn and head to new highs.

More in the weekend report for subscribers.