Dollar's Short Term Rally May Be Shorter Than Anticipated

The dollar is really struggling on election day in the US.  Perhaps it realizes that it can't win, regardless of which party wins?

The very short term upward trendline has been decisively broken, but the lows are holding--at least at this moment.  A breakdown below 76.15 spells trouble, and perhaps the beginning of things becoming disorderly in the decline, as suggested by John Hathaway on Bloomberg.

We still remain of the opinion that the Fed will actually disappoint.  As long as the lows hold, we'll hold that conviction.  As we suggested last week, the markets may expect upwards of $1T for QE2.  The Fed has been ratcheting down expectations and used the term "a few hundred billion," which set the low for the dollar.  According to today's economist survey results, the consensus is $500B for QE2.  Keep those numbers in mind for tomorrow's FOMC announcement.  We anticipate that the Fed will announce $500B +/- $50B for QE2 while leaving the door open for future QE rounds.  This will likely disappoint the market, leading to a dollar upward move and an asset/precious metals pullback.  That will create a buying opportunity.

The longer term trend remains the same.  Fiat currencies are going to be devastated, and the USD will likely lose its reserve currency status.  But this game is played in short timeframes with volatility being the norm, not the exception.


We will have to see tomorrow how it all goes down.

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