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Relecting on the Dollar


Over the weekend I took a roadtrip to see the Clinton Presidential Library in Little Rock (with a side trip to Hope to see the President’s first home where I learned that Vince Foster grew up next door and they played together as kids).

Going through the exhibits, I ran across the above and it reminded me of a long-term chart of the dollar I had posted several months ago on this blog. I thought it might be a good refresher to see the impact on the dollar from the macro economic policies adopted by the various administrations. PLEASE understand that my commentaries in the boxes are not intended to be qualitative in nature but rather just to describe the time periods. If I failed, please cut me some slack as I have not intended to insult your favorite President. Below is the chart for your review:


The chart is sort of squished, so you can copy/paste the link below into your browser to see it more clearly:$USD&p=D&st=1982-08-16&id=p57097806960&a=174750485&listNum=1

That all being said, I want to repeat what I said a few months ago: the Clinton-Gingrich era of bipartisan economic cooperation and fiscal prudence was good for the dollar – the budget busting/deficit increasing/national debt accumulating policies of other eras have been bad for the dollar.

Why am I bringing this up again (other than as a side note to my road trip)? Because we are seeing some counter-trend strength in the dollar that has caused havoc in the stock and commodities markets the past week or so. In the chart below, you can see what has happened:


We have broken above the downtrend line that was established back in March. We’ve also broken above the 13-day moving average, but so far we have been contained by the 34-day moving average. This is not a huge thing, and if the 34-day contains it, I’d look for the dollar to fall back to the trend line and eventually move below it.

From a macro long-term perspective, the dollar is going down. From a near-term perspective, you are seeing strength because everyone finally got on board with the concept of the weak dollar. The herd will shift gears into strong dollar mode right before the move back down to trend – it always happens – so we want to be on the right side of the macro trend without suffering too much pain from the near-term swings.

As I write this, the dollar is trading down while gold and oil are up big after the overnight markets weighed in on the action.