Dollar Rally Updates (27 Oct 2008)

We are in a period of deflation and the US dollar is gaining ground each day. In the stock market, most of the short sellers have covered their shorts. However, in the currency markets the process of short covering for the dollar trade and selling of commodity related currencies like the CAD, AUD, NZD are still underway.

Rest be assured, all those unwinding will end soon. If any analyst say that the unwinding is going to end in December, my prudent estimate is in November. If you noticed, the EURO has not rebounded very strongly in recent days. Therefore, I suspect, the EURO will reach 1.15 in a matter of days/weeks...not months.

Here is a chart of FXE, notice that the price is approaching 3 levels of possible support.


And here is the chart for UUP. I think the dollar could possibly reach 28.5 with little difficulty. That could be an ideal place to short the dollar. If the price action goes above 28.5, I really don't know what to say....


Part of the strength of the dollar is linked to Crude Oil... If the demand for crude oil could picks up soon, then that might give us some hope to be bullish on equities.

The chart below shows the USO, I think we could be heading to 40 very soon. And that could be a point where equities could achieve capitulation. Lets see what the EIA report says on Wednesday, hopefully USO will bottom soon.



Deflation is still putting a lot of pressure on the Futures:


Strategy: Since capitulation on equities and currency markets is a brief process, I plan to do nothing and stay in cash. In case you haven't noticed, we are already long the dollar by staying in cash....