Dollar Doldrums

The value of the U.S. dollar as measured against a common basket of foreign currencies was fluctuating in a narrow range marked roughly by boundaries between $.80 to $.81 when we last discussed it on our Atlas Indicators website. We said any evidence that our currency was beginning to strengthen would be met with the appropriate action; lacking that, we would keep our indicator pointing straight down and invest accordingly. The trading range was broken to the downside recently, and the dollar is now approaching a low point around $.76 on our chart, a level where it found a modicum of support about a year ago. It may hold here, or continue down further to the lows around 72 cents seen two years ago. We don’t try to determine any absolute price point as a target. Rather, we try to ascertain the trend, either up or down, and benefit from it. Further, we ask what is driving the trend and what could reverse it. Here is where we find things become foggy. Prevailing thought suggests the decline is caused by America’s profligate spending for domestic stimulus and foreign wars. Our needs are met by constantly increasing our borrowing, driving down the world’s faith in our ultimate ability to service and repay this debt. A great theory, but one which fails to explain why our huge Treasury Department’s auctions continue to be meet with substantial global demand. It seems unlikely countries who believe we are about to fail would loan us money for thirty years at interest rates well below 5%. But if the dollar continues to fall, who is it that’s selling? We see no visible footprint as of now. What to do? We’ll continue to ride the trend, remaining ever mindful that significant data could be forthcoming at any time. When we see it, you’ll be the first to know.