Sy Harding’s Updated (Bullish) Outlook on the US Dollar

Sy Harding’s Updated (Bullish) Outlook on the US Dollar

Courtesy of Sy Harding, who shares my bullish dollar sentiment (at least for the intermediate term).

Sy writes in his latest Street Smart Report:

U.S. Dollar. We remain on the buy signal for the dollar.

Our buy signal was based mostly on the short-term charts and indicators. They turned positive when the dollar reached the potential intermediate-term trendline support drawn through its lows of 2008 and 2009.

The rally forecast by the short-term indica-tors has the dollar up to the potential resistance at its intermediate-term 20-week m.a., where it has paused, and has us watching closely.

However, it looks like the intermediate-term indicators are now turning positive. If the dollar can get through the resistance at the 20-week m.a. we should see another leg up.

US Dollar Price Chart Intermediate Term 2011Source: Street Smart Report

It?s a situation similar to treasury bonds, where an asset class is defying the Fed’s inter-vention. Another of the Fed’s goals for QE2 was to drive the dollar lower, to make U.S. exports less expensive in global markets. But instead the dollar has been rising since the Fed first mentioned the possibility of QE2.

An interesting aside: China is the world?s largest holder of foreign exchange reserves. An estimated $1.7 trillion is in U.S. dollar assets, including bonds. A member of China?s central bank said yesterday that the dollar will be a safe investment for the next 6 to 12 months while global markets are focused on the debt troubles in Europe, but that America?s fiscal health is worse than Europe?s and the dollar will fall again when Europe?s situation is stabilized.