Three weeks ago, we discussed the possibility the the dollar was bottoming and poised for a major rally.
My reasoning was that:
- Sentiment was overwhelmingly negative on the buck. I noticed that even traditional contrarian investment sources appeared to be piling on. When there’s nobody left to sell, that’s usually a good sign that the bottom is in.
- We still appear to be in a period of debt deflation, which the Federal Reserve is basically helpless in preventing, because we have a credit based system. When credit goes away, it’s gone forever. You can’t print credit.
- The Japanese Central Bank, despite its best efforts, was ultimately unable to produce inflation since their credit bubble popped in 1990. And if the old joke is that their central bank was so incompetent that it couldn’t destroy its own currency, I didn’t know why ours would be any different.
What’s happened in the last few weeks?
Pulling up the chart, the dollar appears to be forming a bottom. The 77 mark has held:
Is the buck bottoming?