BarroMetrics Views: The US$ 2010-01-21
Before we get into the blog, let me apologise for the haphazard updates this week. My new project is taking up inordinate amounts of time and with the travelling, I manage to throw out my schedule. I should be back to posting on a Mon to Fri basis next week.
Today I want to step back and take a look at the US$. Let’s start with the context.
- Right now there is an inverse relationship between the US$ and US Stocks; there is also a direct relationship between the US$ and commodities.
- The Obama administration has embarked on an inflationary policy. This is a natural consequence of its the massive deficit spending. So far that spending has not hit Main Street as evidenced by the record deposits with the St. Louis Fed.
- When banks start lending again, we’ll see inflation rise. I expect that on this rise, we’ll first see an initial knee-jerk response of US$ strength. After that, however, the reality will sink in that the US economy, at best, will be facing stagflation, and at worst, a hyperinflation induced deflation. In turn this will result in the end of the inverse relation in (1).
- At that point, we’ll see Gold, Crude etc rally and the US$ and US stock market decline.
That’s the context. On Friday, I’ll deal with the technicals. The questions I’ll be seeking to answer will be:
- What are the probabilities that the DX (US$ Index) will continue to rally?
- If it does rally, what are the possible targets where the rally will encounter hurdles?
So now over to you: what do you think? Do you agree or disagree with the ideas I have expressed?
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