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Dollar Rally Lures in the Suckers
Pinnacle Digest writes: Contrary to popular belief, the US dollar is still a weak and vulnerable asset due for an immediate drop. As Adam Hamilton states in his recent weekly report, the strong-dollar is a fallacy. Despite soaring 5.4% in the month of May alone - a very impressive rally - if you look at the dollar’s behavior from a longer-term perspective and a more relative perspective, you’ll see its movement of late is actually quite weak. In fact, Hamilton believes the dollar’s market behavior is a prelude of a significant move lower for the greenback.
As Hamilton states in his latest report: “Perspective is everything in the markets.”
Attaining that perspective is the tricky part, but when you do, the ability to accurately predict future price moves becomes easier.
Of all the reports we’ve read on the dollar of late, Hamilton’s new issue on the currency is by far the most telling and accurate.
In his article, Hamilton makes many arguments to why the dollar is in serious trouble and that its latest rally is in fact a sign of its weakness. Perhaps his strongest point in the article is when he shows the vulnerability of the dollar by analyzing the US Dollar Index (USDX). As he explains “ Born many decades ago in 1973, it [USDX] measures the progress of the dollar against a basket of a half-dozen major foreign currencies. Dominating these is the euro, at 57.6% of this index’s weight. Next are the Japanese yen, British pound, and Canadian dollar at 13.6%, 11.9%, and 9.1% respectively.”
Hamilton explains that the USDX, before the euro was created, was evenly weighted amongst several currencies. Ever since the creation of the euro, the weighting has become skewed (as you can see from the euro’s 57.6% weighting in the USDX now). So given the fact that over the last 2 years the euro has been on the brink of collapse given its many evolving crises, wouldn’t it make sense the USDX should have experienced near record rallies in that time?
When putting it all into perspective, this rally hasn’t been all that impressive considering the USDX weighting, the fact the euro is the dollar’s only competition and the fact that being long the dollar is now the most overcrowded trade in the financial world.
Click here to read Adam Hamilton’s article on why he believes this rally in the dollar is indicative of a coming bear market for the currency.