The technical picture of the USD shows a large descending triangle which is an indication for further downside for the USD. This chart is in sharp contrast to the repeatedly announced “strong-dollar policy” by the US administration.
So what is going on here? Did the US government surrender to the power of the Euro, or is it part of a new tactics not yet quite understood by European policy makers? Fighting an opponent doesn’t always mean opposing his force. When faced with overwhelming power, good fighters often use their attacker’s force to their advantage (Sunzi, 1901), like in Judo, for example. In my view that appears to be the case with US tactics against the Euro.
Let me explain that view by having first a look at the current situation:It is with utmost interest that I watch the usually very upbeat news on CNBC, one of the reasons being to be able to answer anxious questions from nervous investors, who call in the next morning in order to inquire about the latest CNBC broadcast. So at the same time I also have the pleasure to regularly watch two fast-talking and squeaky clowns in the CNBC circus (Vieira da Cunha, 2001) who, for the last few years, have given their upbeat views on any economic, financial, and political issues. The “know it all” duo’s advice has not been particularly rewarding for investors, and had you invested your money according to their “never in doubt” bullish mantra, your assets would be worth today at least 78% less than in 2000 (in terms of Euro or in a hard currency such as gold, they would be down in value by another 25%), (Hable, 2004, and Lefevre, 1994). But since poor advice is not only endemic to those two relentlessly irritating financial commentators but is almost a prerequisite for success in the financial service industry, I shall not hold it against them. Still I have a question relating to a statement by Mr. Kudlow, which somewhat surprised me and others. In an article he explained why “the current economic situation is a lot like the start of the Reagan Boom 30 Years Ago”. Hello?!
Now, I have some serious reservations about this comparison for the following reasons. If you look at interest rates over the last 40 years or so, you will see that when, in 1980, Mr. Reagan became President of the US, rates were near their highs and since Mr. Volcker (then the Fed chairman) pursued at the time very tight monetary policies he managed to bring down the rate of inflation, and subsequently also interest rates, which then fell for the next 22 years and also enabled him to keep money supply under tight control. Needless to say that whereas interest rates were sky high in 1980 and significantly above the rate of growth of nominal GDP, today the Fed Fund rate is significantly below the rate of nominal GDP, which suggests that short term interest rates can only rise if nominal GDP continues to expand.
full article at source:http://www.marketoracle.co.uk/Article34407.html
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