Wednesday, April 20, 2011

US Dollar Index Plunging - Dollar Crisis?

On February 25th I posted the following:
Back on the 18th of January I blogged about USDX support at 79 being broken to the downside. We're now dancing with the lower support area of 77. Below this there may be support at 76 and then 74, but the US Dollar is looking very weak. I would not be surprised to see a break below 74 over the next couple of months which would support higher Gold and Silver prices early in the year (as they have an inverse relationship).
Shortly after this post we saw the US Dollar Index fall below support at 77, it then broke support at 76 and has been dancing between 74 and 76 for a few weeks. In my opinion a break below the 74 support level is likely in the short term (previously made a low around this area in late 2009):

Below 74 and we're looking to retest the 2008 (all time) lows at around 71.

If the US Dollar Index were to fall below 71 this could cause a panic out of the Dollar leading to a "Dollar crisis". The panic is also likely to see Gold and Silver rise sharply (priced in USD) given their inverse relationship.

If the US Dollar were to fall to new all time lows it would put further pressure on the Fed to stop or reduce the QE program. I have previously discussed a  possible scenario that could occur if QE were to be halted this year. In my opinion it wouldn't be pretty.

I think any panic out of the USD this year would be short lived, much like the Euro sell off (in early 2010) we would likely see a sharp dip lower and then a strong bounce out of the lows.


Disclosure: Positions held in Gold & Silver. Not investment advice. Do your own research.


  1. @ BB
    "I think any panic out of the USD this year would be short lived... "

    My opinion is just the opposite BB - the US does not have the political will of that core driver force (captured elites) of the economy who are intensely intent on the PNAC and more war. As Gillard desperately seeks a Tax - any tax will do - to impose - the US desperately seeks more wars. And Africa is a target and has been for over 20 years.

    My prediction is collapse of the US dollar in the late 2011 to mid 2012 range - which will be glaringly obvious by end of July. Collapse of Bond Markets - collapse of all cohesive structures in US political landscape and structures which includes States and Federal sectors - Military and agency sectors will completely breakdown and the frenzied "neocon" elements will continue unabated until around 2015 - where they will eventually be confronted and stopped.

    My message is that we must not permit the Gillard / Arbib US military occupation of Australia for purposes of "confronting" China - which of course is a "neocon" contrivance which is to utilize Australia as a nuclear war zone and safe sandbox for these maniacs to play their deadly games away from the US populace - and more importantly on our homeland. Please note that radioactive fallout as a result of nuclear War with China, will remain in the Southern hemisphere thus leaving the US and the rest of the World safe - while the rest of us fry...

  2. Peter, I wouldn't say our opinions are opposite, perhaps just a different expectation on the timing of it all. I agree that the US Dollar is toast in the longer term, but if we see a panic out of it and it drops considerably lower, then the Fed will likely stop QE in June then we could see a deflationery period like 2008 where the US Dollar spikes considerably higher (perhaps for some months/a year) before continuing it's descent.


  3. Thanks again for the Post BB - I too am watching the US Dollar index for the critical 71-72 technical mark.

    We all agree that it is not a matter of if but when then US dollar encounters a panic and is dethroned as the world currency. Will it be a collapse or a planned and relatively stable transition? I only wish I knew.

    I for one am not so bold as to predict a timing of such a demise - its far too complicated a question for me to calculate and put a Date on.

    PeterJB - No disrespect intended but I don't know how we went from Dollar collapse to Nuclear holocaust in Australia but I think you are making some huge assumptions somewhere along the line.


  4. BB, yes I agree that is a potential scenario. I don't think it is likely though given the vehement hatred that The Bernank has for deflation. If he stops QE, as you said, the economy will crater. If he continues QE, the dollar will be destroyed. It is a no win situation. My hunch is 70-30 he will choose the latter.

  5. @ Frank Sydney

    " No disrespect intended but I don't know how we went from Dollar collapse to Nuclear holocaust in Australia but I think you are making some huge assumptions somewhere along the line."

    You could trot over to:

    And have a read of what I have written, and please read all the links to supporting materials and then consider the following:

    1. Life is all about risk where living is about the intelligence of probability IOW Life is a school of probability (somebody else said that).

    2. There is no point in waiting until the US Military commences an invasion of China from Australia in order to be in opposition about such matters, as we human animals are supposedly capably of sentient sapienistic neurological functionality, that is to say, being about to develop considered probabilities, aye - in hypothesise, we should make such probabilities - known to the disbelieving public with whom we may need to share the arising, impacting and resultant pain, thereof. Complaining about such a War after-the-fact, will be a mite or tad, too late, methinks.

    You may however, and have the right to do so without question, feel that the words of those like Mr. Rudd and M's Gillard - for example, "jointly confront China" (Australia's really only major customer at the moment) demands an immediate major extension of the US Military Occupation of Australia - and or, "confront" really only implies talking nicely to as opposed to waving sticks and spears and yelling, or alternatively, the US wars and invasions of Iraq, Afghanistan, Pakistan, Libya (just to quote a few) are merely slaps on the wrist for naughty Arabs and 'heretical fascist Muslims" (take your pick), - or that the "neocons" are really just nice quiet innocent academics that I have seriously misjudged, then, indeed, you may be justified and comforted in suggesting that I am making "huge assumptions".

    Or, "poof" as the French would say.

    Unfortunately, and although scepticism is normally and or typically healthy, to be sceptical - explicitly implies that the engaged sceptic is lacking in tacit knowledge as well as academic depth in the contextual volume encapsulating the matter of note.

    Okay then - an analogy perhaps: The US economic, socio-economic, financial, monetary, fiscal and moral decline cum collapse, 'ain't' new and they (some - the one's in control) do know what is happening and are doing that which they think is best in such circumstances, that is to say, to lash out at anybody, any nation, nations, people in a desperate frenzy of "extremis" (see: Biology) in order to induce exogenous credits into their depleted coffers that are now hundreds of Trillions in the Red (pun intended) in order to supplement their obligations to their almost totally unproductive workforce whilst keeping the wheels of that Nation, moving on the tracks. Old trick: Britain have been using it for years and still are at it.

    3. Why would the "leaders" of any Nation, particularly one that has no military might per se, at all (unless you count all those bureaucrats) - invite the most powerful Nation militarily on the face of the Planet, to occupy militarily? Greeks bearing Gifts? So, Australia either goes 'radio-active hot' or alternatively, our children will get permanent US Passports - as only naivety would have you believe that the US would nicely leave once their military is in place.

    Australia ideally fits all the US requirements - read the article - and then come back and tell me that my assumption is huge, er, please.

    BTW. Why is M's Gillard visiting Japan at this time? Just to be nice?

    The more laws and order are made prominent,
    The more thieves and robbers there will be.
    Lao-tzu, The Way of Lao-tzu

  6. PeterJB -

    So as not to hijack the BB's great article I have posted my comments on your blog.

    Needless to say I stand by my original comments:

    "You are making huge assumptions along the way"