Sunday, June 7, 2009

Dollar has bottomed, but for how long?

I've been expecting a major low for the dollar for a while now. I was beginning to wonder if it came early in March. The move on Friday back above the key 80 level is suggesting that the weekly and seasonal cycles just stretched to the very end of their timing band.

I think we are now in a key period that will determine whether deflation remains in control or we see hyperinflation sooner rather than later.

If the dollar can close back above the 200 week moving average as it bounces out of this bottom I will have to give the edge back to the deflationary side. If however it rolls over quickly and takes out the recent lows I think we are going to be looking down the barrel of inflation and probably a currency crisis later this fall.

I'm guessing we are going to see pressure on everything from the stock market to all commodities as this rally gets underway. I expect the dollar will probably get rejected on it's first attempt to recover 83. That could probably set up a retest of the lows and a 1-2-3 reversal. Whether or not the reversal is successful should tell us whether to plan for inflation sooner rather than later.