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The Fed And The Dollar: Something May Be Changing

September 22, 2015

For years I have heard many claim that the Fed has a goal of keeping the dollar down.  Many have even been calling for the end to the dollar based upon this claim.  Many have even assumed the Fed has been successful at keeping the dollar down.  Unfortunately, these folks have not been burdened by the facts.

 

You see, all you have to do is look at the chart of the DXY, you will clearly recognize that it has been in a strong uptrend rally for the last 4 years.  In fact, back in July of 2011, I published an article that said “based upon my count, the dollar will now begin a multi-year bull run.” And, since its lows in 2008, when the government and the Fed have been attempting to engineer our markets, the dollar has reacted in the exact opposite manner in which the public believed.

 

This brings me to the past week.  All I heard was that if the Fed raised rates, then the dollar would soar, whereas it would collapse if they did not raise rates.  So, the morning of the Fed announcement, I looked at the position of the dollar, and noted in our Trading Room at Elliottwavetrader.net that the dollar was positioned to drop towards the 94 level, so that must mean that the Fed was not going to raise rates that day.

 

But, I also noted that a drop to the 94 region would then set up a strong rally, which can take the dollar over 100.  So, would that leave the fundamentalists who thought that the dollar would only rally on a Fed hike scratching their heads once again?

 

Last weekend I stated that the DXY has developed a potentially bullish structure, which can see a strong rally take hold once it completes its wave ii pullback.  I noted that it would take a break down below the 94 level in the DXY for me to question the potential for a strong rally over 100.  And, as we now know, the DXY has rebounded strongly on Friday from a low of 94.06.

 

So, what will it take for me to see confirmation that we are heading over 100?  Well, to start with, I would expect the DXY to complete 5 waves off the lows, which will likely take it to the 95.60-95.80 region early in the upcoming week.  It should then pullback correctively to just below the 95 level later this coming week.  And, if we are going to begin a rally to over 100, we should then see a very strong reaction through the 96 level to provide us with the initial signal that we are on our way over 100.

 

Clearly, as this pattern progresses, we will continually move up stops on long positions to lock in profits.  But, for now, you should have stops on your long positions placed no lower than the 94.05 level, since a break down below that level at this point in time would open the door for a drop towards the 91 region.

 

I would also like to make one final point.  I am seeing initial indications that the dollar MAY begin to change its directional relationship with the equity markets.  As I noted above, the dollar and the equity markets have been moving in the same general direction for the last 4 years.  But, I am seeing initial indications that would suggest a changing public perspective regarding the Fed and its role in our overall markets, which also suggests a changing view of the dollar.

 

Until now, most have been under the incorrect assumption that the Fed was controlling the dollar, completely ignoring the fact of the dollar rising despite all the “market engineering” not having the expected effect upon the direction of the dollar.  That perception may soon be coming to an end, and the public may finally be moving towards the recognition of the realities of price. This may cause the directional unity of the dollar and equity markets to become severed.  So, while I cannot definitively state this is changing right now, I am seeing some signs that this may be the case, and will confirm or dispel this perspective over the coming weeks.

 

Avi Gilburt, Esq.

www.elliottwavetrader.net

Discussion
13 Comments
    Sep 22, 2015 22:25 AM

    The only thing changing , is that it is hard to get change back from a $100 bill….

    Sep 22, 2015 22:34 AM

    street level inflation will always be heading higher, no year has ever cost me less to live, all the commodities that have fallen hard these past few years, how many have passed on those savings to the street, coffee as a great example….they screw us on the way up and they never pass on savings on the way down

    Sep 22, 2015 22:49 AM

    SAXO BANK..CIO……says FED is a “joke”…………jdsmineset.

    Sep 22, 2015 22:52 AM

    USA…….TO put 20 NUKES IN GERMANY…..against Russia……zerohedge

      Sep 22, 2015 22:53 AM

      I guess in lieu of gold……the Germans get to be toasted first with nukes….

    Sep 22, 2015 22:57 AM

    EXISTING HOME SALES DOWN…………….cheap rates do not help the homeless………

    Sep 22, 2015 22:54 AM

    for those that think the result of a stronger US$ is from selling US equities you should do your homework

    The SP500 rose 42% in the 80’s while the $ rose 66 cents, remember when strong $ meant strong economy SP500 rose 250% late 90’s-2001 as the $ rose 31 cents and the SP500 rose over 200% from 2009 as the $ rose 89-100

      Dan
      Sep 22, 2015 22:10 PM

      Strong Market does not always mean strong economy.. (like past 6-7 years)

        Sep 22, 2015 22:18 PM

        it hasn’t since the 80’s many of those big players exiting the us equities can’t buy gold as the liquidity is not there are they have weight restrictions position wise, fill your hedge fund with Apple but never gold, crazy stuff

    Dan
    Sep 22, 2015 22:12 PM

    if people are not moving to the dollar from selling equities than Gold would be rallying as a safe haven destination!

      Sep 22, 2015 22:33 PM

      What can I say, Dan? Money is money!

        Sep 22, 2015 22:34 PM

        Sorry meant to post this under Mr. Hamilton’s comment about dividends!

    Sep 23, 2015 23:18 AM

    The Fed may not be able to control the dollar at this time, but it is a certainty that central banks ARE controlling the dollar. The dollar is only strong because all other currencies are weak due to easy mony policies.