Question: How low can the U.S. Dollar go?

[Sapiens]

I know, silly question. But riddle me this: How low can the U.S. Dollar go before the EU bankrupts and Japan exports tank…

I know the standard institutional answers, but what is your take?

[Sapiens]

Re: Question: How low can the U.S. Dollar go?

http://www.currencytrading.net/2007/...om-10-experts/

[algerwetmore]

Re: Question: How low can the U.S. Dollar go?

I don't know how low it will go, but I heard Marc Faber say it will go to zero, but of course there is no time frame. What he might be saying is before the dollar gets to zero, an alternative currency will be in place.

As far as short term predictions, Jim Sinclair keeps throwing out the dollar decline to .52!

[Guest]

Re: Question: How low can the U.S. Dollar go?

Dollar bounce and "significant" sell cue on gold and silver today. Time to bail out of trading positions for a little while. Chance to buy gold back at $750 - $800 upcoming!

[Tulpen]

Re: Question: How low can the U.S. Dollar go?

I know, silly question. But riddle me this: How low can the U.S. Dollar go before the EU bankrupts and Japan exports tank…

I know the standard institutional answers, but what is your take?

Nobody obviously knows the bottom, personally I think that the dollar is due for a big reversal this year.

[Sapiens]

Re: Question: How low can the U.S. Dollar go?

I know, silly question. But riddle me this: How low can the U.S. Dollar go before the EU bankrupts and Japan exports tank…

I know the standard institutional answers, but what is your take?

Ok, so I am not doing a good job getting my question understood, maybe because I forgot the question mark, so let me ask again:
How low can the U.S. Dollar go before the EU bankrupts and Japan exports tank…?

Think about this:

The implied assumption is that if the Fed cuts interest rates, there will be inflation. But then, let me ask you, where is the new debt growth coming from to create the inflation that is implied from the Fed’s interest rate cut?

[touchring]

Re: Question: How low can the U.S. Dollar go?

Are you selling all your gold and silver? Or have you sold everything? :p

Dollar bounce and "significant" sell cue on gold and silver today. Time to bail out of trading positions for a little while. Chance to buy gold back at $750 - $800 upcoming!

[GRG55]

Re: Question: How low can the U.S. Dollar go?

Ok, so I am not doing a good job getting my question understood, maybe because I forgot the question mark, so let me ask again:
How low can the U.S. Dollar go before the EU bankrupts and Japan exports tank…?

Think about this:

The implied assumption is that if the Fed cuts interest rates, there will be inflation. But then, let me ask you, where is the new debt growth coming from to create the inflation that is implied from the Fed’s interest rate cut?

The inflation is coming from Asia, and the US is now importing it. The US is trying to export its recession, in the form of a declining US $, not inflation.

[Sapiens]

Re: Question: How low can the U.S. Dollar go?

The inflation is coming from Asia, and the US is now importing it.

GRG,

What do you mean by inflation? You do mean the higher prices for the Asian goods?

The US is trying to export its recession, in the form of a declining US $, not inflation.

Help me here, how is the US making its $ weaker in order to export its recession? (What actions, what steps)

Thanks for helping me out here, I am really trying to understand....

[Guest]

Re: Question: How low can the U.S. Dollar go?

Are you selling all your gold and silver? Or have you sold everything? :p

Touchring -

No of course not. I keep a 25% trading position in the metals, in order to 'buy more ounces' on the downturns. That is already pushing the limits of what should be a trading position. I learned it from seeing large gains evaporate a good part after the big up moves. It pays to trade a portion.

You must have noticed from my other posts that I'm not otherwise a market timer, no? "Have you sold everything", in the context of my multiple prior posts on this topic, would appear to be a question you don't need to ask?

[Sapiens]

Here comes the worldwide currency debasement

Here comes the worldwide currency debasement

http://www.telegraph.co.uk/money/mai.../ccview117.xml

Foreign investors veto Fed rescue
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:11am GMT 19/03/2008


As feared, foreign bond holders have begun to exercise a collective vote of no confidence in the devaluation policies of the US government. The Federal Reserve faces a potential veto of its rescue measures.

Desperate measures: Bernanke and the Federal Reserve need to keep on top of the crisis and continue to intervene if needed

Asian, Mid East and European investors stood aside at last week's auction of 10-year US Treasury notes. "It was a disaster," said Ray Attrill from 4castweb. "We may be close to the point where the uglier consequences of benign neglect towards the currency are revealed."

The share of foreign buyers ("indirect bidders") plummeted to 5.8pc, from an average 25pc over the last eight weeks. On the Richter Scale of unfolding dramas, this matches the death of Bear Stearns.

Rightly or wrongly, a view has taken hold that Washington is cynically debasing the coinage, hoping to export its day of reckoning through beggar-thy-neighbour policies.

It is not my view. I believe the forces of debt deflation now engulfing America - and soon half the world - are so powerful that nobody will be worrying about inflation a year hence.

Yes, the Fed caused this mess by setting the price of credit too low for too long, feeding the cancer of debt dependency. But we are in the eye of the storm now. This is not a time for priggery.

The Fed's emergency actions are imperative. Last week's collapse of confidence in the creditworthiness of Fannie Mae and Freddie Mac was life-threatening. These agencies underpin 60pc of the $11,000bn market for US home loans.

With the "financial accelerator" kicking into top gear - downwards - we may need everything that Ben Bernanke can offer.

Bear Stearns may be worse than LTCM collapse
Jeff Randall: A world addicted to easy credit must go cold turkey
How Bear Stearns ran out of the necessities
"The situation is getting worse, and the risks are that it could get very bad," said Martin Feldstein, head of the National Bureau of Economic Research. "There's no doubt that this year and next year are going to be very difficult."

Even monetary policy à l'outrance may not be enough to halt the spiral. Former US Treasury secretary Lawrence Summers says the Fed's shower of liquidity cannot cure a bankruptcy crisis caused by a tidal wave of property defaults.

"It is like fighting a virus with antibiotics," he said.

We can no longer exclude a partial nationalisation of the American banking system, modelled on the Nordic rescue in the early 1990s.

But even if you think the Fed has no choice other than to take dramatic action, the critics are also right in warning that this comes at a serious cost and it may backfire.

The imminent risk is that global flight from US Treasury and agency debt drives up long-term rates, the key funding instrument for mortgages and corporations. The effect could outweigh Fed easing.

Overall credit conditions could tighten into a slump (like 1930). It's the stuff of bad dreams.

Is this the moment when America finally discovers the meaning of the Faustian pact it signed so blithely with Asian creditors?

As the Wall Street Journal wrote this weekend, the entire country is facing a "margin call". The US has come to depend on $800bn inflows of cheap foreign capital each year to cover shopping bills. They may have to pay a much stiffer rent.

As of June 2007, foreigners owned $6,007bn of long-term US debt. (Equal to 66pc of the entire US federal debt). The biggest holdings by country are, in billions: Japan (901), China (870), UK (475), Luxembourg (424), Cayman Islands (422), Belgium (369), Ireland (176), Germany (155), Switzerland (140), Bermuda (133), Netherlands (123), Korea (118), Russia (109), Taiwan (107), Canada (106), Brazil (103). Who is jumping ship?

The Chinese have quickened the pace of yuan appreciation to choke off 8.7pc inflation, slowing US bond purchases. Petrodollar funds, working through UK off-shore accounts, are clearly dumping dollars amid rumours that Gulf states - overheating wildly - are about to break their dollar pegs. But mostly likely, the twin crash in the dollar and US agency debt reflects a broad exodus by global wealth managers, afraid that America is spinning out of control. Sauve qui peut.

The bond debacle last week tallies with the crash in the dollar index to an all-time low of 71.58, down 14.6pc in a year. The greenback is nearing parity with the Swiss franc - shocking for those who remember when it was 4.375 francs in 1970. Against the euro it has hit $1.57, from $0.82 in 2000. Against the yen it has smashed through Y100. Spare a thought for Toyota. It loses $350m in revenues for every one yen move. That is an $8.75bn hit since June. Tokyo's Nikkei index is crumbling. Less understood, it is also causing a self-reinforcing spiral of credit shrinkage throughout the global system.

Japanese investors and foreign funds are having to close their yen "carry trade" positions. A chunk of the $1,400bn trade built up over six years has been viciously unwound in weeks. The harder the dollar falls, the further this must go.

It is unsettling to watch the world's reserve currency disintegrate. Commodities from gold to oil and wheat are taking on the role of safe-haven "currencies". The monetary order is becoming unhinged.

I doubt the dollar can fall much further. What is it to fall against? The spreading credit contagion will cause large parts of the globe to downgrade in hot pursuit - starting with Europe.

Few noticed last week that the Italian treasury auction was also a flop. The bids collapsed. For the first time since the launch of EMU, Italy failed to sell a full batch of state bonds.

The euro blasted higher anyway, driven by hot money flows. The funds are beguiled by Germany's "Exportwunder", for now. It cannot last. The demented level of $1.57 will not be tolerated by French, Italian and Spanish politicians. The Latin property bubbles are deflating fast.

The race to the bottom must soon begin. Half the world will be slashing rates this year to stave off credit contraction. The dollar will have a lot of company. Small comfort.

[Sapiens]

Re: Question: How low can the U.S. Dollar go?

http://www.babypips.com/school/the_usdx_components.html

The USDX Components

The Basket
The U.S. Dollar Index consists of six foreign currencies. They are the:

Euro (EUR)
Yen (JPY
Cable (GBP)
Loonie (CAD)
Kronas (SEK)
Francs (CHF)
Here’s a trick question. If the index is made up of 6 currencies, how many countries are included?

If you answered “6”, you’re wrong. If you answered “17”, you’re a genius.

There are 17 countries total because there are 12 members of the European Union plus the other five (Japan, Great Britain, Canada, Sweden, and Switzerland).

It’s obvious that 17 countries make up a small portion of the world but many other currencies follow the U.S. Dollar index very closely. This makes the USDX a pretty good tool for measuring the U.S. dollar’s global strength.

Now that we know what the basket of currencies are, let’s get back to that “geometric weighted average” part. Because not every country is the same size, it’s only fair that each is given appropriate weights when calculating the U.S. Dollar Index. Check out the current weights:

As you can see, with its 12 countries, euros make up a big chunk of the U.S. Dollar Index. The other five make up less than 43 percent.


Here's something interesting: When the euro falls, which way does the U.S Dollar Index move?

The euro makes up such a huge portion of the U.S. Dollar Index, they might as well call this index the "Anti-Euro Index". Because the USDX is so heavily influenced by the euro, people have looked for a more "balanced" dollar index.

Wait until the ECB cuts loose, then you tell me the Dollar will crash... ha ha ha

[GRG55]

Re: Question: How low can the U.S. Dollar go?

GRG,

What do you mean by inflation? You do mean the higher prices for the Asian goods?




Help me here, how is the US making its $ weaker in order to export its recession? (What actions, what steps)

Thanks for helping me out here, I am really trying to understand....

Negative real interest rates.

[GRG55]

Re: Question: How low can the U.S. Dollar go?

Wait until the ECB cuts loose, then you tell me the Dollar will crash... ha ha ha

This, and your post immediately above, are on the money. That is why I started selling some Swissie and Euro, and a bit of Yen last week and continued into this week.

The Dollar is severely oversold and, as I posted a couple of times, few things other than ballistic missiles go up or down in an uninterrupted line.

Cyclical bounce underway. Long term it will still fall, especially against the Asian currencies which will take up the brunt of the remaining secular decline.