Monday, February 15, 2010

Macro View through Key Prices - US Dollar

Instead of detailed technical and/or fundamental analysis of the global & USA economies, I'm going to review selected key prices with just the 10 month exponential moving average, long term trendlines, and key price support & resistance.  Let's start with the US Dollar in this series of blog posts.  This is rather a simple approach, but I think it is a reasonable overall view that filters out the noise of daily news & politics.  Perception, rightly or wrongly, has already been priced in.  Forward macro pricing is involved in such charts, but risk has also been priced in.  Perceived fear and hope (aka greed) are what drives markets and results in the price.

My overall worldview, which affects my comments and interpretation of this and any chart are at the end of this blog post.

The chart below is the monthly closing price of the US Dollar with the 10m ema in white and any key prices & trendlines in a yellow line.  Prices above the 10m ema are indicating bullish markets and below are bearish markets.

I am starting with the US Dollar, the lifeblood of the global economy.  Regardless of Congressional, Presidential, and/or Federal Reserve Bank actions, the USA is still the largest stand alone economy in the world.  Rightly or wrongly, the US Dollar is still the reserve currency of the world and a global safe haven.

This monthly chart is from the peaks in the early 2000s until the present, Friday, February 12.  The key price of 80 is noted in yellow.  The well known long term trendline has been down.  The USD breakout and close above the 10m ema occurred last month, January 2010, indicating a long signal, a bull market.  A short signal had existed previously since May 2009.  Although the 10m ema has been downward pinned this month, the USD is staying above the signal so far.

Previous upside breakouts on this chart have been sustained for a few months.  I think the USD will maintain strength, and a bull market, because of the European and perhaps other fiscal crises for several months, at least.  This will create an upward resistance pressure on USA equities.  Perhaps the negative correlation between the USD & equities will break down some, for the short term?

I don't see the March 2009 highs being reached again, but more of a churning sideways and some price increase as the 10m ema eventually shows a neutral market for the USD.  What do you think?  Of course, any major international crisis would strengthen the USD and is not considered in this scenario.


Having read, studied, and followed economics since I was quite young, I finally realized the dismal science, and the stock market as well, has both optimists and pessimists aka bulls and bears. Economists, with opposing worldviews or agendas, take data, premises, and arrive at contradictory conclusions! Therefore, I will just let the 10 month exponential moving average be the indicator and judge and be done with it. That is my premise. The future, the trend, is my conclusion - or arrive at your own and proceed accordingly, if you accept my 10m ema signal premise.

Personally, I am in the pessimistic bear camp long term (5+ years) regarding the USA economy, due to the complete mismanagement of the federal defict and resulting debt by both the Republicans & Democrats plus the ongoing negative structural change in America. Short term (1 year) I think anything is possible and intermediate term (1-5 years) I think the downward trend in the USA will become evident.

My overall worlview as concisely as possible? The global economy experienced a credit expansion, a bubble, of heretofor unimaginable proportions which originated in the USA, but apparently the Europeans followed suit. The best and brightest in the USA financial system, the investment banks and money center banks, packaged and sold a normally very safe global asset - USA consumer and commercial mortgages to both domestic and foreign investors. Even the USA GSEs, such as FNMA & FHLMC became involved. Greed ultimately prevailed and the greatest scam in history ensued; junk and sham mortgage backed securities and collateralized debt obligations. We are now in a massive credit contraction, the bursting of the bubble, and the result of this scam, the debt and risk, has shifted from the private sector to the public sector worldwide via government funded debt plus direct and indirect guarantees. There's more, but I'll stop, lol. I think you get the drift...


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