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Look at this weekly chart and what do I see? An asset that’s on the brink.
You have a series of lower highs and lower lows.
The 20-week and 50-week moving averages are rolling over.
The recent bounce was firmly rejected several days ago.
And technical support in the 93-95 area is under assault yet again.
The asset in question? The Dollar Index (DXY). I first started warning in early May about a potentially significant break in the DXY, which tracks the performance of the U.S. dollar against a basket of six foreign currencies. The euro has the heaviest weighting in the index at just under 58%, followed by the Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
We saw a temporary bounce after my column came out, one based on what I consider to be misguided optimism on the state of the U.S. economy. But that bounce just failed miserably.
Why? Because we learned a week ago that U.S. job growth stunk up the joint in May. And when you boil it all down, buying the U.S. dollar is a bet on the health of the U.S. economy. If the economy firms up, the dollar should rise. If it rolls over, the dollar should fall.
[Read More – The Consequences of Reckless Lending – Mike Larson]
You know I believe that the U.S. economic cycle is very long in the tooth and that recession risk is rising fast. The bond market certainly agrees with my assessment, given that long-term yields are falling and that the yield curve is collapsing. As a matter of fact, the spread between 2-year Treasury Notes and 10-year Treasury Notes just dropped to 90 basis points (0.9 percentage points) yesterday. That was the lowest since November 2007. The precious metals market agrees, too. I say that because gold and silver surged in early 2016, and they’re now rallying back sharply after a brief correction.
Will the dollar be the next major asset to fall into place — to confirm my recession forecast is on track? Only time will tell. But the contra-dollar and pro-bond investments I’ve been recommending in my Safe Money Report and my All Weather Trader services are performing well. I urge you to give AWT a try by clicking here if you want your piece of the profits.
Another option? Join me on the 2016 Money, Metals, & Mining Cruise! I’ll be sailing aboard the Crystal Serenity with a trio of respected gold and mining experts from July 10-17. The Anchorage-to-Vancouver journey is a great way for you to learn why the dollar, gold, and gold shares are doing what they’re doing — and how you can profit from it all.
With only a month to go, cabins are filling up. So be sure to check out this link for more information as soon as you can. Or give our representatives a call at 800-797-9519 and ask for the Money, Metals, & Mining special rates.
[Read More – Yet ANOTHER Billionaire Warns About Coming Chaos – Mike Larson]
If none of that interests you, just make sure you own some gold and other contra-dollar hedges. That would include things like foreign bond funds or foreign currency ETFs. You can find information on one product line from Guggenheim CurrencyShares here. Then if the dollar does truly break down, be sure to increase your exposure to those kinds of investments in order to profit.
Until next time,
Mike Larson
{ 15 comments }
I do not trade currencies, but noted today that my chart guy is predicting a short term rally towards 9470 – 9510. This is all short term stuff, but might point to an area to consider if wanting to go short. Not sure how the UK referendum is going, but an out vote on 23rd June might be expected to weaken the euro, strengthen the dollar, as investment banks put their oar in having positioned themselves to make money short term. A remain vote might be expected to do the reverse. UK bookmakers had remain as odds on and an out vote as 3-1 against last time I checked. (Similar odds to Hilary and Donald)
Hi Mike
In Singapore at the moment. It appears to me we are missing both control of markets and trust in them. Market trading needs to be seen as free of fed control for investors to remain involved. I’m still in cash which is unusual for me while earning little interest, but I’m not losing any capital. I just don’t trust the fed’s manipulated interest rates or the market traps built around them as you have pointed out before.
Sorry, but what the market and economy need is to be free of a self-interested Congress. You could eliminate the Fed tomorrow, and as long as deficit spending continues, so will the govt debt spiral.
Wall Street went to the Fed for the money to bail them out.
I have been trading only one currency for only one other currency since 1994: US$ for gold/silver. I’ve never looked back. LOTS of bounces along the way, with nothing but profits between then and now. I agree with Larson, the dollar is likely to go down, there IS INFLATION for staples (which the government won’t include in it’s inflation rate): gas, food natural gas/electricity, etc. The dollar simply keeps buying less and less every year. As people keep having to spend more and more US$ for these staples, they buy less and less on “luxury goods”, thus the government claims there “is no inflation”. Just wait until the FED claims “victory” with “inflation rising to acceptable levels”, the average working person will simply not make ends need financially…………….
I wish I could post this to Facebook
If the Dollar rises in value, it is considered Deflationary, since it has greater value, and will buy more. It is great for average people, but not for bean counters in companies and the Fed. They want it to LOSE value, so it takes more of them to buy things, and the bean counters have more of them to play with. Of course, average people are harmed by such Inflation, but the Fed is happy, along with the companies, which can put more of them in the bottom line. It looks better, after all, even if the inflated bucks really buy less. We humans pay more attention to appearances than to what lies under them. Always have – always will.
There will be a recession regardless whether Clinton or Trump wins the Presidency.
S L Carlsen
It sure looks like we are heading for a recession as so many black swans are swimming in the economic pond . Lets see Rail Traffic is slowing down , Baltic Dry Index is in decline,auto delinquencies are on the rise and the # of seasonal and part time workers is on the decline . Seasonal and part time workers are the easiest to hire and the easiest to fire . The last time there #’s declined significantly was just before the 2001 and 2008 recessions .
Vinman
True. The unknown answer is what rises from the ashes. Will the Collectivist be successful at “reminded the earth to their hearts desire”, or will freedom survive?
The Wall Street Journal tells how Donald Trump uses the debt he owes others to punish them for perceived mal-performance, etc. Sometimes he never pays up. ‘Just what we need – a deadbeat in the White House. Of course the other choice is a liar, who believes the buck always stops with someone else. This country is certainly headed for Third World status – or worse.
I agree that a recession is very likely at this point — all the indicators are converging on that. USD is probably headed higher in a final run up well past DXY 100. It’s the fifth wave of an Elliott wave pattern not yet complete. What happens afterward is not clear.
I am a 62,year old college educated man who has been in my own business for 38 years. In NYC. Business has been stagnant for the past 14 yrs. not getting worse but not getting better. I wish the White House would call people like me and ask how the economy is doing ,as I will give them the answer from the street. It’s not good nor has it been good since slick Willy was in office. We sell high end ,fine jewelry and this is what I see. Either people have a lot of money and are buying expensive items or people are selling to make ends meet. I feel like a bottom feeder at times but I have a place in the food chain I guess. For sure we need to get our house in order ,all we need is the will and a rallying point. Oh how I wish I were King
It is a time
As stocks have taught us, the dollar has little to do with the US economy, other than its relative performance to the rest of the world. The primary driver for stocks and the dollar is capital flows from the the weaker and more troubled areas of globe.
The $ is so distorted by the actions of the fed in trying to support a hopeless fiscal policy, that it is hard to see how they are going to dig themselves out of this hole. Same goes for the EU.