US Dollar Collapse Unlikely: Rising Dollar In The Short Term

| November 26, 2010 | 0 Comments

There’s been a lot of talk about the death of the U.S. Dollar lately.

Ben Bernanke’s seemingly endless money printing campaign may indeed spell doom for dollar holders in the long run.  In fact, some investors are convinced the dollar is going the way of the do-do bird.

Famous investors Jim Rogers, Marc Faber, and Peter Schiff think the dollar is eventually headed down the economic toilet.

Judging by recent currency trading action, they may be right…

U.S fiscal uncertainty put the greenback under pressure for most of the summer.  The U.S. Dollar Index has been sliding steadily from June all the way through early November.

But that’s just part of the story…

The falling dollar has pushed commodity prices skyward.  Precious metals are surging and oil was pushing $90 not long ago.  Since the dollar is the reserve currency, nearly everything priced in it has seen quite a jump.

Given all the negative news, one would think a dollar collapse is imminent.  Such a scenario would send the price of nearly everything into the stratosphere in a matter of weeks.

But don’t go running for the hills just yet…

The rug may get pulled out from underneath the U.S. Dollar bears.

Why?

The debt problems in Europe are coming to boil again.  Ireland is begrudgingly accepting a bailout and now Portugal and Spain are coming into focus.  The whole situation is a nightmare for the European Union.

The last time we saw this type of stress was when Greece was on the ropes.  In early 2010, there were fears of Greece buckling under debt pressures.  The news sent the Euro plummeting downward for months.  Of course, this sent the U.S. Dollar surging to the upside.

Are we about to see a big break higher in the dollar?

   This is a rising support zone the dollar has reacted off in the past.  Notice how the dollar is finishing strongly to the upside in recent weeks (blue circle).

We saw the same thing in December of 2009…

You can see what happened the last time the dollar hit this support area. It went up for months and made dollar bulls some nice returns.  Meanwhile, the bears were sent into hibernation licking their wounds.

We may be in for another big dollar rally…

The technical picture, along with another round of European debt stress, could send the dollar skyward.

How far could this rally go?

The rally may take us up to the red trendline resistance at the 86 area. This is an area where sentiment shifts to the downside for the dollar.  You can see how it reversed lower at the red trendline in the past.

The bottom line is this…

There’s no doubt the dollar has some long-term problems.  The famous investors I mentioned earlier may eventually be proven correct.

But don’t let all the negative hype confuse you in the short term… the dollar isn’t done just yet!

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Category: Currency Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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