We should all be scared half to death that the US Dollar is rising

Foreign Currency Exchange Outlook: As they used to say in the Clinton Administration, It’s the economy, stupid. Now we have to say, It’s oil, stupid. While it’s nice to have a stock market rally and even nicer for bond yields to be rising, these are frothy things. What’s real is oil, and oil is having the most reliable relationship with The US Dollar that we have seen in recent years among any two asset classes.

We should all be scared half to death that the rising US Dollar, or at least the US Dollar not falling through to the basement, is built on something we fail to understand, the workings of the oil market. Analysts can offer plenty of reasons for oil to be retreating, but most of the reasons have nothing to do with actual supply and demand, including the airy-fairy idea that the US will resume drilling on the Continental shelf (over Al Gores’ dead body). Therefore, while we are perfectly willing to entertain the idea of an ongoing dollar rally based on a temporary drop in the price of oil, we don’t trust it one inch, and you shouldn’t, either.

All we can forecast for sure in the coming days is continuing volatility. Options traders must be ecstatic. The rest of us should be very, very cautious. At a guess, many Currency Traders are hunting for a US Dollar high to sell it for a longer-lasting slide. That means we should be looking for good places to buy things we think we have a grip on, which unfortunately number only two today—the CAD and AUD. Late today, picking positions for Sunday night is going to be just awful unless something happens today.

As long as oil slides downward, we have to accept a stronger dollar—but it’s on a flimsy basis that can disappear in a flash. Oh, dear.

Bye for Now

Barbara Rockefeller