Ben Bernanke this week speaks to the Senate Banking Committee
just as Alan Greenspan did i n 2 005. In 2005 Mr. Greenspan
made a statement that at the time flew under the radar and didn't
capture the public's attention like it probably would if Ben
Bernanke made such a statement today.
Greenspan said to the Senate Banking Committee concerning Social
Security , "We can guarantee cash benefits as far out and at
whatever size you like, but we cannot guarantee their purchasing
power." By that statement, Greenspan implied that money
can always be printed to pay for benefits at the expense of a
devalued U.S. Dollar.
Mr. Bernanke this time around may or may speak to the specifics
of Social Security benefits, but the risks to the U.S. Dollar
certainly remain as high as ever.
Given such risks, why then have we actually bullish on the U.S.
Dollar? Simply put, because price and sentiment tells us to
What We Think
In our Technical Forecast published 2/10, I laid the
groundwork for why the US dollar is currently a good
buy. "The U.S. Dollar has already broken out of its downtrend
channel and provides a buy signal for aggressive traders in the
PowerShares DB Bullish Fund (NYSEARCA:UUP) or in the PowerShares DB
3x Levered long (NYSEARCA:UUPT)."
That trade has worked out well as the PowerShares DB 3X
levered long (NYSEARCA:UUPT) is currently in an uptrend from its
low point of $19.29 on Feb.1 to $21 this week. Will
that uptrend in the U.S. dollar continue?
What Everyone Else Thinks
One of the reasons I'm bullish on the dollar, besides just the
technicals, is the overly pessimistic sentiment. The
short dollar trade is a crowd favorite, and when trades get
popular they're often wrong. This is easily seen from just a
few days of headlines which imply a bearish dollar and bullish Euro
"Chinese Yuan to Take First Place from Dollar" - 02/19/13
"Euro Breakup Risk Falls to 5 Year Low" 02/191/13
"Singapore may scrap US Dollar interbank lending rate" -
Every day there are news articles trying to justify the daily
swings of the markets, currencies (NYSEARCA:FXY) included. Do
these headlines and articles really help us decide the direction of
In reality news articles really only help us identify the
prevailing public sentiment, and that can be a helpful indicator
There are numerous opinion surveys that reflect the public and
investor sentiment on the dollar and other currencies and assets
beyond what the news articles reveal to us. Bloomberg, Ned
Davis, and Market Vane track a few more standardized gauges of
When public opinion as measured by these surveys reaches extremes,
a turning point in the asset is usually very near.
Counter-intuitively when opinion hits its most bullish is
usually when tops occur and when sentiment is most negative is
usually when bottoms occur. Therefore, you should likely take
a contrarian approach when investing by doing the opposite of the
In September 2012 negative sentiment in the US dollar hit a
depressed level that had not been seen except a few times in the
past, which is one of the reasons we suggested in our October ETF
profit Strategy Newsletter to go long UUPT on 9/21 @ $19.68;
coincidentally just before the dollar rallied 5% as UUPT hit the
$21 target less than 2 months later.
Earlier this month, sentiment again hit a similar bearish level
that has already sent the dollar up a few percentage points.
I expect that sentiment to continue to help propel the dollar
Finally, speculators, who typically are wrong at key turning
points, were the shortest they have been since the dollar was
trading at its lows in 2011.
All of this adds up to a bullish scenario for the dollar.
What the Chart Reveals
Technically the dollar has formed a bottom with trendline
support from 2011 at September's lows and shown in the chart
below. This support held again in October, December,
and more recently at the turn of the month.
This support along with a change in sentiment from bearish to
bullish should keep providing the buyers needed to propel the
dollar higher. The $79 price area also is where the Fibonacci
correction level resides, likely also attracting buyers and
Both the UUP and UUPT trades are up, and we maintain our
bullishness on them as long as price stays above our identified
stop levels, now safely out of harm's way. I will be updating
these levels and the price target for the trade in our twice-weekly
published Technical Forecast.
Knowing which way the dollar is headed has much larger
implications than what appears on the surface due to its highly
correlated (and bullying) nature with other assets, especially the
stock market (NYSEARCA:IWM). Given the size of the dollar
market, it is the proverbial gorilla in the room.
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