Is the Dollar Doomed?
Source: http://feedproxy.google.com/~r/ContrarianProfits/~3/O0v1t9AkUfA/15323Posted on Friday, March 27th, 2009 | In China, Market Commentary
Even with China’s veiled threats to pursue a “new reserve currency” and even with Ben Bernanke dropping cash from helicopters, I still don’t think the dollar is heading much lower. Here’s why…
As you can see from the chart above, the US Dollar Index ($USD) has formed a nice upwards trend line that stretches back to mid-September.
Today, the dollar is hitting that support line. Also, its RSI and Slow Stochastic are both indicating that the stock is oversold and ready for a bounce higher.
Fundamentally, China won’t start dumping dollars unless they want to slam the value of its over $750 billion in treasuries it holds. China also realizes that if it begins dumping dollars, it could trigger a trade war with the US.
Both of those things are bad for China. Yet, that’s not the only reason to suspect that the dollar will remain a reserve currency for some time.
In the G20 meeting coming up on April 1, China plans to make a big deal out of creating a new reserve currency. But, if the US doesn’t want that to happen, it won’t. That’s because for the G20 to adopt a new reserve currency, it would need approval from the US (since it has veto power).
Last time I checked, the US wants to keep its reserve status. And so more than likely, the G20 meeting will be a nonevent (As far as the dollar is concerned).
The play to make is to go long the dollar and ride it back up to its previous highs. But keep a stop-loss around 82.
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ben bernanke, China, China, contrarian profits, Market Commentary, United States, USD
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