Keep an Eye on the Dollar

The United Arab Emirates current inflation rate is 11% because of their dollar pegs. Other countries with pegged or managed money have the same difficulty.  It seems unlikely that they will unpeg even though common sense says they must.  

All the bank pressures in the US will get worse as the housing market continues to decline.  Problems surrounding other countries’ markets are a risk to the US dollar too.  There is the fear that more banks will fail.  There is a chart for the dollar index that provides a good reference in the short run.  The US dollar has been in trading range since March, more recently in the lower half of the range.

This leads the experts to forecast the value of the dollar.  The end of this range will define the future of the dollar.  The end of the range will occur, but sometimes it can go on for years.  The dollar strength would be called medium to long term if it lasts another six  months.  If the range would end soon, it would signal that the bear market would continue to go on.

Bernanke, an expert in the field, seems to be more bothered by the downside risk to the economy than the other side, the risk of inflation.  Bernanke has studied the economy history.  He believes that any wrong step will lead to deflation.  He proposes this will cause the interest rate to ease up by the Feds and not to tighten up.  This could occur for the UK as well.

The Euro

Since March this year a range for the euro/sterling has been detected.  This is a technical coincidence of the range first going sideways, then up trending from a year ago.  The economists believe that the euro will break to the upside against the sterling.  A Euro above 0.8 would add value to the German’s government bonds and portfolio holdings.

The US technical reading of the pound/US dollar is biased toward the strength of the sterling.  The support level of the sterling is a $1,935.  As long as that holds, the sterling is very positive.  The pound/US dollar has recently held support beating the downward trend.

Conclusion

We are all left with the inclination that something big is going to happen soon.  Experts predict something will occur after studying the currency charts.  Unfortunately, the something may be a sharper decline of the dollar as a result of the troubled US housing market and banking sectors.  This will likely occur no matter what the actions of Fen Bernanke’s Fed and Hank Paulson’s US treasury.  Now is the time to keep an eye on the dollar index chart, and keep track of the US dollar value.