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2006-12-13 :: Dollar's Slide

I saw this chart from an article written by Helene Meisler and thought it was pretty telling.  You can see that the Dollar Index has strong support at the 80 level.  We are current 2 points and change above that support line, and we are seeing some strengthening in the index.

What does this mean?  In my view, it will take a pertty strong economic event to push the dollar much lower in the near-term.  Will that be the much anticipated Fed Rate cuts?  Its hard to tell, but in the near-term we will not likely see the dollar index drop below 80.  This means that the outperformance of foreign stocks to domestic based solely upon the dollar falling is over until that event pushed us below 80.  That event will come – most likely in my mind will be a China-induced drop – and when it does it will cause a big drop as the debt fueld excesses of the consumer and the government have to be paid for at some point.

I’ll have more discussion on this in the upcoming 2007 Outlook newsletter.

More later!