"As a technician, I feel that there are few analysts that offer value for me, but you do. Your work on Gold ratios has helped my analysis greatly." --Jordan Roy-Byrne, CMT (The Daily Gold) 4.9.10

Thursday, February 19, 2009

USD

Just noodling around on a Thursday morning, I came up with this look at the dollar. Assuming it tops here, one could envision the stock market gaining a bit of life in conjunction with the terribly misguided hope pump coming out of Washington. These vampires spin a story of doing what is necessary to get the economy moving again when all they are really doing is hoping to devalue the currency and re-neg on a large portion of our debts. It will not work, at least not as they would hope.

Under this scenario, the markets find an excuse to bottom (USD topping), hope gains a bid and the dollar corrects to around the SMA 200, bottoms there and rises to the top of the triangle.

At that point we would have two taps of the lower line and three hits on the upper, which is enough to fulfill the ascending triangle, lock and load its target of 98, and piss off the hopers.

If things play out in our little scenario, policy makers and indeed the entire ship of fools will begin sucking on the story, sucking the blood out of the last story available, dollar devaluation. Then the sun will shine once again on the vampires.

The dollar represents liquidity and safety in an intrinsically worthless instrument. Gold represents liquidity and safety in an ancient and enduring hunk of value. It is really not much more complicated than that. The country is like an elderly person slowly succumbing to dementia in the years immediately pre-death. Reality is ever more out of reach with each passing day.

Edit (7:36) Then of course, there is the other scenario, which holds that there will be no new round of deflationary liquidation, we do not pass go, do not collect $200 and proceed directly to hyperinflation. That scenario involves the USD making a higher 'C' leg right now. This seems counter-intuitive, but it would be healthier for the price of USD and the impending (and final) deflationary liquidation story if the dollar reversed lower now.