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November 24, 2006

A Big-Picture Look at Currencies
by Gary Tanashian

USD is breaking down from a bearish flag and a test of the major lows around 80 looks likely.

Euro breaking out of bullish flag on the way to a possible test of major highs.

Swissy is even more bullish then the Euro. See our short-term chart from 2 days ago.

Aussie dollar sporting something of a rising wedge up to a double top?

Now here is a large and bearish rising wedge on the Canadian Dollar in the process of breaking down.

Finally we find our favorite basket case, the Yen, actually looking bullish in the bigger picture.

These are monthly charts, which allow us to dial out to the a very big picture on the currencies, and by extension to the economies and markets they represent. We note that the USD has had all kinds of time to mount the strong deflationary rally that many have predicted. This failure must be very disappointing to dollar bulls. But, just as the anti-dollar trade becomes a cacophony of "death of the dollar" hyperbole, we will at least remain aware of the potential for a major double bottom near 80.

The charts of other major currencies are provided to give frame of reference to the dollar and its fate. The Euro and Swissy could be considered anti-dollars in that the Euro appears to be the primary challenger to the world's reserve currency and the Swiss Franc is commonly thought of as a note that represents everything that the American debt note no longer does. Then we have the "commodity" or "resource" currencies, the Australian and Canadian dollars. I do not see a whole lot of bullish there and if I were a commodity bull I would be taking note and using caution. Finally, the slap happy Japanese Yen, which despite official efforts to the contrary, maintains a bullish stance to these eyes.

As always, we will watch for signs of hyperbole in the mass public mind set and remain aware that the dollar's reign as a functional reserve currency may not be over quite yet. We will also watch the Yen for a bullish turnaround, which would have global liquidity implications. The story the currencies are telling, at least to this writer's eyes is one where we get a strong anti-dollar drum beat in the near-term rejuvenating the "inflation trade" even as "commodity" currencies top out or continue to deteriorate, the dollar reverses off major lows, the Yen rises and we enter a period of slowing economic growth and a contraction in the global economy. It is either that or if the US Dollar breaks 80, we are talking Banana Republic or worse, Wiemar.

Relevent ETF's impacted by future moves in world currencies are too many to list here, but major market ETF's such as SPY (US), EWA (Australia), EWC (Canada), EWJ (Japan), EWH (Hong Kong) and special niche ETF's like GLD (Gold Bullion), SLV (Silver Bullion), USO (Crude Oil) and DBC (Commodities) hang in the balance.

Gary Tanashian
http://www.biiwii.com/

Disclaimer: biiwii.com does not recommend that any trading or investment positions be taken based on views expressed on this site. If you speculate or invest it is suggested that you consult a financial advisor qualified in your area of interest.

Copyright © 2005-2008 Gary Tanashian

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