Monday, January 31, 2011

USD - Does Anyone Want It

The USD is really struggling lately.  The USD and the EUR in the race to the end, right now is favoring the EUR.  We have a potential banking crisis in the EU, Ireland revised down their GDP forecast to 1% from 2.4%, the UK just had their GDP contract, there is talk of bond hair cuts for EU bailouts, PIIGS CDS and yields continue to rise and Ireland and Greece are so bad off they are already talking about extending the term of their credit to 30 years.  All of this still is finding investors more willing to buy the EUR versus the USD.

Below are two charts.  One is a three year daily showing the trend line that has served as support each time it's been tested.

This next chart is a three month, daily showing the range the USD traded in for well over a month before finally breaking down.  Even in the face of geopolitical risk, the USD just cannot catch a bid.  Today's price action was a bearish reversal of Friday's risk off trade. People seem to just no longer trust the safety of the USD.  The implications should the USD not maintain reserve currency status are very scary indeed.  Should that happen we can kiss goodbye our low interest rates, our $2.75 gas and more.   From a technical standpoint it appears the USD is hell bent on testing the trend line once again.  It is due for a bounce purely from a technical standpoint.  What if it doesn't bounce though?  What if all it gets is just a bounce and eventually just sells off.  

We have a group of academics, named the Fed conducting a real world test in currency debasement.  There are food riots throughout the world.  China just reported lower manufacturing expansion and higher inflation.  Rice prices closed limit up today.  Should the Fed be successful in their all out debasement of the USD and risk losing reserve currency status, they also risk losing their power.  It boggles the mind that some guy appointed by the President can have so much control over the world economy and not be subject to any real time audit and accountable to no one. 

Clearly something has gone awry, no?


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