The US Dollar Just Peaked

The dollar took off in July for a smooth one-way ride, a love-fest that lulled traders to sleep. But those days are over.

By Steve Sjuggerud, Daily Wealth:

Yesterday, risky assets tanked, and “safe haven” assets soared. But one traditional safe-haven asset didn’t follow the script – the U.S. dollar.

As investors fled Italian bonds, Greek bonds, and Japanese stocks, they poured money into U.S. government bonds as a safe-haven play. A huge amount of dollars was needed yesterday to buy all those bonds. In a single day, the interest rate on 10-year government bonds fell from about 2.2% down below 2.0% (before settling at 2.1%). That might not sound like much, but it is a massive move.

So you would think the U.S. dollar would have gone up. It didn’t.

What that tells me is that everyone who wants to own a U.S. dollar already owns it. This fits with the numbers from my friend Jason Goepfert of Jason’s sentiment data shows that the U.S. dollar is more loved than it ever has been.

It can’t go higher, because there’s nobody out there left to fall in love with it. So it can only go down. After doing nothing for a while, the U.S. dollar started taking off in July. And it’s been a one-way ride to the start of October… Take a look:

That smooth one-way ride created the dollar love-fest. It lulled traders to sleep. It was practically Groundhog Day, as currency traders woke up each morning to the same thing – a higher dollar. Those days are now over. The U.S. dollar just peaked. By Steve Sjuggerud, Daily Wealth

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  5 comments for “The US Dollar Just Peaked

  1. economicminor
    Oct 16, 2014 at 9:03 pm

    The dollar rise couldn’t have had anything to do with the FED removing some off their purchasing of MBS and US Treasuries could it?

    Because if the FED is actually going to stop pumping, then the dollar will be stronger as there will be fewer dollars available. Or at least not more. I think that this chart pausing is because there is faith that the FED is going to step in and do some more QE.

  2. lahandro
    Oct 16, 2014 at 10:54 pm

    One day’s worth of price action is the substance of your entire analysis while making such an incredible bold claim? You’re telling me one day of market action is enough to tell you that the Dollar is done for? Ridiculous bordering on ludicrous.

    You seem to be blithely unaware or have forgotten that risk-off in the currency world is almost always short USD/JPY. Money flees the dollar for the Yen. Which, surprise is exactly what happened yesterday.

    Pay more attention the USD/JPY pair. It’s price action is much more important in a panic and the dollar index is driven by that money flow under risk-off conditions.

    I don’t know what the dollar is going to, I would hazard a guess up versus down, but I would never base a position on one day’s price action. That is literally insane.

    • Oct 16, 2014 at 11:06 pm

      Not any more insane than other bets. The author has his reasons. Everyone does. Every trade has two sides. One of them is wrong.

      But just in case you haven’t seen it, and to show you that this isn’t a one-day deal: a couple of weeks ago I posted a little article by a different author that warned that the dollar would soon break down….

  3. Mark of Zero
    Oct 17, 2014 at 8:40 am

    This article cracks me up. The dollar is going to decline? Compared to what other currency? The ruble? The peso? The yen?

    Ridiculous. As the world crumbles around us, where do you think capital will flow to? Argentina? France?

    Myopic and misguided advice given in this post.

    • Oct 17, 2014 at 8:53 am

      “Compared to what other currency?” I mean, come on, Mark. Open your eyes and look at the chart: the dollar index! It’s based on the standard basket of major currencies. That’s how you measure the movement of the dollar against other major currencies. Never heard of it? Well, now you have.

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