Mish: Expect Continued Rally in US Dollar

I second everything Mish says in his latest post:

Those who think the Australian dollar or the Canadian dollar are some sort of safe haven will find out otherwise.

China is in a credit bubble and when it pops it will take commodities and commodity producing currencies down with it.
Australia’s property bubble has already popped, and a commercial real estate implosion will follow with a lag, just as happened in the US. Canada will join the implosion party as well.
The Canadian and Australian central banks will respond with liquidity measures or interest rate cuts, sending the currencies lower.

There is no reason to like the Euro, the Yen, the Australian dollar, or the Canadian dollar.

For that matter there is no reason to like the US dollar except things are about to get worse than expected everywhere else. That coupled with a messy default setup in Europe and a Fed that did “less than expected” on Wednesday are sufficient reasons to expect a rising US dollar.

… along with the Dollar I think gold will continue to do well also.

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Gold, Treasury Notes, Dollar – May 2011

The long term trend for gold, Treasury Notes, and the US Dollar seems to be holding up.

There has been some noticeable action in Treasury Notes most recently, in particular since February 2011 investor’s appetite has been growing again and thus rates have declined and remained within the range that has been developing since 2008:


Gold’s trend has been holding up steady as always:


As you can see in the chart there has always been room for dips in gold, and that is not different now. It may very well drop somewhere between 1,300 or 1,400, however, so far it has always done so only to bounce back even stronger after that. In particular when the next credit crunch happens it is possible that gold will see some dips alongside all other commodities, but then come roaring back up while other commodities continue to crash. This is at least what happened in 2008 and it may well happen again.

… and the seemingly most hated currency in the world has also remained within it’s long term trading range, and it may be possible that once again it will show some significant strength for the months to come:


The deflation trade has been dormant for a while indeed, but its expected trends have held up so far, and its benefits are most noticeable when everything else snaps back into the general trend of the Great Depression 2.0.

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Dollar Rally – Iranian Central Bank Dumps Euros, Buys Dollars

As a corollary effect to the current Dollar rally, Iran Selling 45 Billion Euros of Reserves for Dollars:

Iran’s central bank began the first phase of the 45 billion-euro ($55 billion) sale of some of its reserves for dollars, the state-run Jaam-e-Jam newspaper reported, citing people it didn’t identify.

The bank is selling 15 billion euros in the first of three stages, which will be completed by Sept. 22, the newspaper reported on its website on May 31.

Iran will “substantially” decrease its oil sales in euros, the paper said. It informed Japan and other crude-oil customers of the change, Jaam-e-Jam said. The Persian Gulf country’s euro reserves are 55 percent of the total, and would be reduced to 20 to 25 percent after the sale is complete and after oil sales in euros have been reduced, the paper said.

Iran’s shift out of euros has been prompted by the single currency’s decline, said Jaam-e-Jam, which is owned by the state broadcaster. Other central banks, including those of the Persian Gulf states, also are selling their euro reserves, it said.

The euro was little changed against the dollar, rising 0.1 percent to $1.2241 at 12:45 p.m. in New York.

The euro made up 27.4 percent of global currency reserves at the end of 2009, according to the most recent data available from the International Monetary Fund. While that was down from 27.8 percent in September, it was up from 26.4 percent a year earlier.

Experts in Iran’s central bank have suggested the country buy gold because they forecast the precious metal’s price will increase, Jaam-e-Jam said.

Euro’s Decline

The euro has fallen 15 percent against the dollar this year, reaching a four-year low yesterday, amid concern the debt crisis that started in Greece will spread to other nations and dent economic growth. The slide forced European Union leaders to piece together an almost $1 trillion loan package last month as confidence in the euro’s status as an alternative reserve currency to the dollar faded.

Gold is up 11 percent this year and is headed for a 10th annual gain, the longest rally since at least 1920. The metal reached a record $1,249.40 an ounce on May 14 and traded at $1,223.05 an ounce in London today.

In essence, Iranian central bankers are jumping on the boat of the deflation trade

I still think that a healthy mix of gold, Dollars, and Treasurys is the right recipe to protect one’s wealth in these turbulent times.

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Has The Dollar Rally Started?

The rally of the US Dollar vs. other major currencies is something that I have been expecting for a while now. The dollar made some bold moves recently. It is conceivable that this may be the kick off to that said rally. Just as an example, below see the Euro/Dollar chart:


The upward trend in the Euro since March seems to have begun reversing. Dollar perma-bears will look at this as just another temporary counter trend move. I believe that it is possible that a longer term Dollar rally is quite conceivable, for all the reasons I stated again and again and that I will not delve into here again. You can read the “Related Posts” below if you like.

Daily FX writes US Dollar Closer to Beginning, Rather than End, of Bull Move:

This is the same chart that was published yesterday. I wrote then that “the clearest portion of the decline is the initial decline that ends at 14670. Since then, price has stair stepped lower in what could be the beginning of a 3rd wave. Staying below 14785 keeps this extremely bearish count on track. A loose target is 14000, which is the 161.8% extension of wave 1.” This analysis remains on track. Risk can be moved to 14600 and resistance is 14420-50.

Sometimes Mish tends to have the amazing tendency to call certain trend reversals almost exactly on the day of the peak/low. This is him on Nov 27: New Record Low Yield On Two Year Treasuries; Is This The Start Of A Dollar Rally?

Given the US markets were closed yesterday, I have the same question floating in my mind as a day ago, wondering if this is another one day wonder rally in the dollar (and another one day wonder selloff in equities) or if this is the start of a long awaited correction in both the dollar and equities.

A significant Dollar rally is, at the same time, very bullish for Treasurys and and very bearish for stocks. Gold may continue to do fine. Time will tell …

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