The Top in the US Dollar Is In. Where to From Here?

December 20, 2022

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9:01 pm

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US dollar index monthly chart courtesy of StockCharts.com annotations by Mish

Yesterday, the Bank of Japan unexpectedly lifted its ceiling on 10-year government bonds from 0.25 percent to 0.50 percent.

*Japan 10-year bond yield courtesy of Trading Economics*

The BOJ lifted the ceiling to stop an unwelcome slide in the yen. In response, bond yields also jumped in the US.

US Treasury Note 10-Year Yield

*US 10-year bond yield courtesy of Trading Economics*

For the first time in a decade, all major central banks are tightening, with Japan still doing the least.

Long term, I doubt this rather pissy move by the Bank of Japan will do much of anything to US treasury yields.

And don’t expect the new cap to hold either. Speculators will again force the BOJ’s hand. Caps won’t work. They are a failed policy.

The same applies to ridiculous Buyers’ Cartel Oil Price Caps.

But what about the dollar?

US Dollar Support Levels

On the monthly chart, there are strong support levels way below at 90 and 80.

A weekly chart shows additional support zones.

*US dollar index weekly chart courtesy of StockCharts.com annotations by Mish*

The US dollar is right at support. I do not expect much of a bounce here if indeed any.

There is minor support at 101 and much stronger support at 95. Given both monthly and weekly support at the 90 level, that is a good spot to bet on reasonable bounce in the dollar.

UDN US Dollar Index Bear Fund

*US dollar index Bear Fund chart courtesy of StockCharts.com annotations by Mish*

Dollar Fundamentals

Deficit spending in the US is totally out of control.
Rising treasury yields will consume increasing amounts of tax revenues
The Fed is giving away billions of taxpayer dollars in free money to banks.
US housing market is collapsing
Corporate earnings are falling
Consensus earnings are still too high
The US stock market is still insanely overvalued, even on a relative basis to the rest of the world
The US pace of tightening is slowing while tightening elsewhere rates to catch up a bit.

For discussion of free money, please see How Much Free Taxpayer Money is the Fed Giving to Banks?

In short, US dollar fundamentals stink.

This may not be the best entry as the dollar is right at support but UDN is worth considering here or on a bounce.

Understanding Long Term Moves in Gold, What’s Going On?

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35 Comments

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Lisa_Hooker

3 years ago

Well, as we are absolutely assured that the top is in there is only one action possible.

Short the Dollar.

GruesomeHarvest

3 years ago

No worries, there is discussion that Donald J Trump may become speaker of the house! With the orange clown leading one side of the DC clown show, we can expect bread and circuses to entertain us the US empire collapses from corruption and gross mismanagement.

Salmo Trutta

3 years ago

Balance on current account (IEABC)

The U.S. has become a deficit nation since 1985. Foreigners will soon become sated with $s.

RonJ

3 years ago

“Caps won’t work. They are a failed policy.”

It is the same thing with pegs. Human nature breaks them, just as Nixon did with the dollar to gold in 1971. Even the pillaging of gold from the new world natives, couldn’t maintain a peg, as the incentive for European rulers to over spend, was too great.

KidHorn

3 years ago

Japan is a mess and I see no way out. The biggest part of their economy is autos and they aren’t making cars that people want. I think many of the smaller car companies will go under. Nissan, Mazda, Suburu… . Meanwhile China will be taking over the car industry with inexpensive electric vehicles. Can the Japanese government bail them out? The only way I see it happening is from selling US debt to raise money. They have roughly a trillion to sell.

Christoball

3 years ago

Everything in America is over priced, and soon to be deflating. There is no longer any margin left for foreign currency owners to pay too much of a premium in order to exchange into US dollars in order to buy over priced American assets. Borrowing really cheap in a foreign currency to leverage purchases in America by converting them to dollars no longer has any percentage left in it.

prumbly

3 years ago

The EU has decided that it isn’t going to trade with any country that “doesn’t share EU values”, which basically means the entire world. This ought to include most member states of the EU itself, but I guess they will give themselves a free pass as long as those countries kiss the ring (so only Hungary will get screwed). It will be fascinating to watch this play out. The EU can’t manufacture stuff itself because of its crazy “climate crisis” energy policies, but soon it won’t be able to buy stuff from other countries that don’t share such wacko climate policies. The EU will become a stuffless society. The Euro has to fall dramatically as the failing economy leads to increased money printing to support social programs. Ultimately this is likely to lead to revolution, and those in power know it – which is why they have gone full authoritarian and are already using live rounds on protestors and locking up dissenters.

Captain Ahab

3 years ago

Reply to prumbly

So, like Jan 6th messaging? Constitutional protection for freedom of speech only holds when the message is approved by the Demautocracy.

RonJ

3 years ago

Reply to Captain Ahab

VP Harris: “…my deep and profound concern about how misinformation and disinformation have infiltrated information streams in our country…”

Democrats will violate the First Amendment in order to protect official disinformation.

How many people know that Celine Dion’s Stiff Body Syndrome, is one of 1,100 adverse events associated with the Pfizer mRNA injection? The CDC isn’t telling us. The mainstream media isn’t telling us. “Safe and effective.” Official disinformation.

Jack

3 years ago

Reply to RonJ

Ok let’s spread hyperbole and opinions and complain that MSM is not picking up the story.

Btw, I also heard that the gun shot death on the set of Alec Baldwin’s movie Rust was also caused by a vaccine. It is a conspiracy that MSM is not reporting.

Sky is falling down.

RonJ

3 years ago

Reply to Jack

It is a fact that Stiff Person Syndrome is an associated adverse event in the Pfizer documentation.

CONFIDENTIAL Page 7 FDA-CBER-2021-5683-0000089

…Stiff leg syndrome;Stiff person syndrome;Stillbirth;Still’s
disease;Stoma site thrombosis;Stoma site vasculitis;Stress
cardiomyopathy…

It is a fact that “Safe and effective” is official disinformation. Birx knew before hand that the mRNA injections didn’t work. Safety issues were also known from the trials.

https://medalerts.org/vaersdb/findfield.php?IDNUMBER=1462791

VAERS ID 1462791

Write-up: Stiff person;…

This is not Celine Dion’s, but this happened on the day of vaccination to the person in this report.

Jimmy Dore, his wife and show producer, all went together to get Covid shots. All three had “Stiff Neck” afterward. Not coincidence. That was not listed in the Pfizer study associated adverse events noted above.

The MSM is not interested in the numerous stories of the mRNA injured. They have a vested interest in the money from pharma companies whose ads they constantly run.

RonJ

3 years ago

Reply to Jack

My original response went off to moderation, which will probably disappear.

Sky has fallen down for the mRNA injured. Justin Bieber has disappeared from public life since Ramsey Hunter Syndrome paralyzed half his face. His young wife also had a stroke. Professional mountain biker Kyle Warner, who got pericarditis, ending his career, said he knew of 6 who committed suicide, within a group of vaccine injured that he was associated with. Stiff Person is a neurological issue and numerous people that have taken the mRNA injection, have experienced neurological issues in temporal relation to date of injection. What is happening to these people is not coincidence.

RonJ

3 years ago

Reply to Jack

“Btw, I also heard that the gun shot death on the set of Alec Baldwin’s
movie Rust was also caused by a vaccine. It is a conspiracy that MSM is
not reporting.”

Let’s stick with conspiracy fact. Maddie De Garay was paralyzed within 24 hours of her second Pfizer shot, in the 12-15 yr old trial. Pfizer documentation listed her adverse reaction as abdominal pain. No mention of paralysis. She also apparently had 35 different adverse reactions to the shot. Brooke Jackson, an employee of Ventavia, documented issues with the testing for Pfizer. She went to the FDA. Crickets. She has since filed a lawsuit against Pfizer.

KidHorn

3 years ago

Reply to prumbly

I suspect after the next euro revolution, the Muslims will be in charge. The left will bow down to them. Then they’ll pine for the good old times when they weren’t being beheaded for failure to pray 5 times a day.

Mouse

3 years ago

Mish-

The USD index is extremely heavily weighted toward the Euro… and the EU seems determined to self destruct. Their energy policy is nothing short of suicidal. Their regulatory environment is openly hostile toward everything from energy companies to pubs to farmers. The EU membership might share a continent, but they have been at war with one another for centuries. The German economic clique is not compatible with the Italian clique — it doesn’t matter which one you or I happen to “side with”, it matters that they are at odds with one another.

So is the USD really peaking in “strength”? Or is the rally in the USD index mostly a reflection of Europe’s weaknesses? And Japan has (until recently) been going mostly sideways. All the other currencies combined have less weight than the Euro.

I don’t know if the USD has peaked or not (not disputing your article, I’m saying I don’t know). The USD is arguably over-valued for the various reasons you mention. But the USD index could keep “going up” if the Euro keeps going down … and the Euro going down seems almost a sure thing. Brussels comes up with new self destructive ideas every month, and the people of Europe just seem to put up with it. European citizenry have been unwilling to stick up for themselves, despite abundant reason to do so. Brussels supposedly (cough!!! wheeze!!) represents the citizenry of Europe?

Mish

3 years ago

Reply to Mouse

Absolutely

Japan can blow up, so can the Eurozone, and so can China, easily.

It’s a reason to like gold.

8dots

3 years ago

USD is backing up to Mar 2020 high, before exceeding 2000, 2001 and 2002 highs. US gov shut down might come before covid death march. Will Shi survive.

8dots

3 years ago

USD weekly might get support from the cloud and ma50. // A Lazer coming from Aug 13 2018 to Sept 3 2019 highs, parallel from

Sept 24 2018 low. The the dollar is in, the beam is hot…Mr Shi tear this wall down. China did. Covid cases are spreading. Crematorium lines are long. Death is marching.

Japan is 40% elderly. China openness might export covid to Japan, millions might die within few week in the year of the Rabbit. Japan might build a wall, but it’s too late. Close to a billion might perish globally. Is wiping out millions of elderly good for Japan ??

Lisa_Hooker

3 years ago

Reply to 8dots

Wiping out millions of elderly is good for any Government that is liable for regular payments to retirees.

RonJ

3 years ago

Reply to 8dots

Omicron is more contagious, but less lethal. There is no reason for a billion to perish. I had it in June and symptoms were like a mild cold. The elderly are more susceptible to mortality, but not even millions in the U.S. have died from Omicron.

shamrock

3 years ago

Corporate earnings are falling? S&P 500 aggregate earnings are up 10% this year and the index is down 18%.

Scooot

3 years ago

Reply to shamrock

This is a good read.

https://www.hussmanfunds.com/comment/mc221219/

prumbly

3 years ago

Reply to Scooot

Hussman has been bearish since 1792

Scooot

3 years ago

Reply to prumbly

Yes many think that. It’s the valuation information and comparisons I find interesting.

There’s nothing to say the S&P couldn’t shoot up to 5000 plus in the near future for all I know, which would just make it more expensive. Or it could trade sideways for a decade or two and get back to a fairer valuation that way, who knows.

I happen to think companies in general are going to really struggle over the next year or two and average earnings will drop. As the Fed has said they’re going to at least retain and more likely raise existing rates for sometime, the Markets’ are going to have to face all the bad news on their own, with no prospect of any help from Central Banks. Therefore personally I doubt there’s much upside potential in the near future but a lot of risk.

Scooot

3 years ago

The BOJ have cracked, they’ve recognised they’ll eventually run out of dollars trying to support the yen so they’ve allowed yields to rise a tiny amount to support it. They’ve effectively acknowledged the yen was overvalued. It’s still overvalued isn’t it, even after a 25bp rise in yields, even more so after the recent rally? You’d have to think the BOJ will do the same thing again if the yen comes under more pressure. FWIW I wouldn’t want to be long yen at the moment.

Mouse

3 years ago

Reply to Scooot

The yen could decline, and the Euro continue is masochist down spiral … which net net would make the USD index continue to climb.

Its not USD strength, so much as “other stuff” weakness relative to the dollar.

The G7 governments are *ALL* over indebted, with lots of unfunded promises, and with poor quality leadership. All the currencies are overvalued. Most can devalue versus the USDollar…. while the USD devalues (further) against commodities and productive assets. Over time, the G7 debt balloon (which is denominated in fiat) gets whittled away.

The USD might devalue more slowly than the Euro and Yen… which means the USD index could keep going up, even as all three fiat lose purchasing value

Scooot

3 years ago

Reply to Mouse

Very good.

Roadrunner12

3 years ago

Reply to Mouse

x1000

Im a Canadian and Im trying to figure out where our dollar goes in the future against the US dollar? I expect that our currency will fare better than other currencies. We will continue to be a major oil exporter. There appears to be some correlation between the Cdn dollar and the price of oil.

My Vegas trips will be a little more pricey.

Maximus_Minimus

3 years ago

The FED can hike rates more to make treasuries more attractive, thus pushing down yield, and the need to curb US deficits.

Matt3

3 years ago

I would think a drop in the dollar would be inflationary. Energy and commodities would move up.

Maybe we haven’t seen peak inflation.

HippyDippy

3 years ago

What does it mean? Don’t worry; the FED will save us with their ultimate solution! Digitize that dollar so that it can be yet another giant leap away from currency. Problem, reaction, solution.

TheCaptain

3 years ago

Component of that deficit spending include woke parasitic programs like:

– Reparations to US black people.

– Pledging 10s of billions in payments to African nations.

– Forgiving loans of liberal US citizens.

– Wide open southern border and those people all represent an untold cost.

Jack

3 years ago

Reply to TheCaptain

Honestly, one of these is new to me: reparations to black African Americans. Is this really happening?

Lisa_Hooker

3 years ago

Reply to Jack

Check out the reparations program at Evanston, Illinois.

Stranger than truth.

worleyeoe

3 years ago

Reply to Jack

California has a Reparations Task Force that is looking at $350K for each black person found to be a descendant of slaves.

Not sure if it’s going to happen, but libs are doing a full court press.

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The Top in the US Dollar Is In. Where to From Here?

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