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There is much chat about the likely demise of the US dollar. But when I look at a short term daily chart for the A$:US$ I see some further weakness for the Aussie which in turn means a strengthening of the US dollar. Take a look at the chart:
click to enlarge
Being a betting man I would be happy to wager with 70% confidence we will see the Aussie get down to US75 cents and a 35% chance to around US70 cents.
When I look at other currencies I see short term strengthening of the US dollar which is contrary to popular thinking. Why might the US$ strengthen? Well it is really a consequence of indirect factors. It is not so much that there is a fondness for the Yankee but rather there are not many other FX options plus many holders cannot afford for the currency to fall out of the sky. And yes we may just see a sympathy rally for the world’s leading economy. But there is still tonnes of bad news ahead for the USA when it will be dribbled out I cannot say.
So if this is the case we should take a sneak peek at a weekly chart:
click to enlarge
Now that looks a more likely scenario. Over the next couple of years we will see the global economy resume its upward path but without dependence on the USA and the world will then sell the hell out of the currency.
PS – is it just me or am I getting it wrong? My emotions just could not be moved by the sensational headlines in our local press on Wednesday. How come I didn’t see the massive sell off they spoke of? Did anyone see the meltdown they sensationalised? Usually I am tempted to do the opposite to the headlines but this ain't over yet. But great for newspapers who are facing a monstrous advertising spending cut. Now that is headlines.
Enjoy the ride
Tom Scollon
Chief Analyst
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