The US Dollar Continued

I had suggested just over a week ago that the US Dollar might be in the process of bottoming out. One of the reasons I thought this was the particularly pessimistic cover of the Economist. Let me explain. The Economist is simply a specific incarnation of the extremely negative sentiment surrounding the U.S. dollar. Although I did discover that the Economist had suggested circa 2000 that commodities were going to be worthless forever (near the exact bottom in the commodities market) my main reason for this suggestion was to be a contrarian. When everyone is on the same side of a market, whether it is stocks, gold, wheat, or Google, that market becomes very vulnerable to moves in the other direction for the simple reason that there is not really anyone left to buy (or sell in this case) and a whole lot of people sitting on profits (short sale profits count too).

The reason I bring all of this up, is that a second factor speculators look for has come into play in the USD: new bearish news has been unable to push the price to new lows. This week the markets decided that its significantly more likely that the Federal Reserve is going to cut interest rates when it meets in December. This news, especially in light of all of the dollar collapse and currency diversification talk, should have sent the USD reeling, or hitting new lows at the very least, but take a look at the chart, not only did the dollar not make new lows, it challenged the highs of the previous week:


Of course there are still a whole lot of people out there with Dollars to sell that could just decimate the thing. Maybe they are waiting for more attractive prices, or maybe the economic tides are turning and this could be a real bottom, nobody knows for certain. What is for certain is that there are two excellent indicators staring us in the face, so perhaps its time to test the waters.