The Week Ahead (October 4) – U.S. Dollar
Take a $100 bill out of your wallet and stare at it closely - it looks the same as it always did. Well, not really, it may look the same but its purchasing power continues to diminish. Within the capital markets that is headline #1 - the resumption of the U.S. dollar's secular downtrend.
The close on Friday October 1st was the lowest for the U.S. dollar since January. The 50 day moving average crossed below the 200 day moving average this week as well. That cross hadn't occurred since mid-February when the second quarter cyclical rally in the U.S. dollar began. Could a near term relief rally unfold to work-off very oversold conditions in the next few days or week? Yes, absolutely. This week's Bank of Japan policy meeting may be the catalyst for that USD relief rally, should the BOJ intervene once again and sell the yen. Cleary, the U.S. Federal Reserve is winning the competitive currency devaluation war. The September 21 FOMC meeting reversed the BOJ orchestrated yen selloff and placed the onus on Japanese policymakers to once again halt the yen's advance. The Bank of Japan meets Monday October 4th.
However, "don't go changing" - as in your portfolio, for a secular shift. A lower U.S. dollar will remain the dominant theme for the remainder of 2010 which will support natural resources, Asian currencies, and U.S. equities.
US DOLLAR 10/5/09 to 10/1/10
USD-JPY 4/1/10 to 10/1/10