On September 24th, posted blog entry USD fell quickly, time for a break?. In that post I called for USD to trade in a range, and stop the freefall the USD was experiencing at that time.
Four weeks later, this view has proven to be correct, the USD has traded sideways. However, I believe that this will soon break, probably as the presidential election approaches.
The only question is, which way does it break. Gary of the Smart money tracker is calling for USD decline. While I agree the USD will decline, and make spectacular new lows, we may get some surprises in the near term. But I do agree that it is more likely that it will follow Gary's prediction.
The reason for my restraint on calling for USD decline resuming in earnest is Europe and other countries are struggling. USD currency valuation is a relative measuring to other fiat currencies. In a relative world, I call into question the USD will move significantly lower in the next 6 months. As an example, Japan which has lead the west in debt to GDP ratio, has recently called on printing more, to keep up with other countries in fiat currency creation. In such a world that countries race to the bottom, its hard to call out USD as leader to the bottom.
I fully expect USD to take the lead after markets depreciate enough to justify the Fed to up the ante beyond QE3 and break the USD as a currency. I expect the USD to begin a lifetime of decline decline.
Right now its watch and see. USD recovers and rises in the months ahead, expect stock prices to continue to decline. If USD declines, expect a more choppy market. Natural Resource costs are already eating away corporate profits. A lower USD will accelerate that trend, and hardly can stimulate significant market valuation gains.