August 12 Dollar Update

Could the bounce really be over this quickly? We don't really believe so. We may have a few more days of generally sideways trending activity in the dollar. The FOMC announcement, which first appeared that it may have strengthened the dollar (presumably because the Fed announced it would wrap up Treasury buying in October), appeared to not be very supportive in the end.

Technically, we're still looking weak. The downtrend line from March is still intact, and there's even a bit of room for a bounce (probably near the 50 dma). RSI has turned negative at the 50 mark--right on schedule. The slow stochastic is approaching overbought, but has already turned (in alignment with the prior two bounces). MACD is still showing positive momentum, but in a day or two, unless the dollar breaks out, that will turn as well. We suspect that will align closely with the beginning of the next leg up in gold.

Note that on the last chart, we have a descending broadening wedge pattern that may be forming. We will need to watch the direction of the breakout for final confirmation, though these tend to be simply continuation patterns.





On a slightly separate topic, there has been a lot of "internet chatter" regarding Harry Schultz' prediction of a formal dollar devaluation coming up. While we greatly respect Mr. Schultz, we don't believe that this will happen unless the dollar shows strength. The Fed (and whether they realize it or not, the government) doesn't want a strong dollar. In fact, a strong dollar will crater the economy (at least this one built on financial shenanigans and inflation instead of positive production). As long as they can control the descent of the dollar and maintain foreign funding (ie, foreign Treasury purchases), we do not believe there will be a formal devaluation. Time will tell, and we cannot simply ignore the possibility that it may occur. Keep several months of cash on hand, just in case.