One of the most common refrains among mainstream currency analysts is that inflationary policy is "the death knell for the U.S. dollar." The logic being: The more money that is flooded into the system via rescue plans and bailout packages, the less valuable becomes the U.S. currency.
This notion took center stage on May 9, 2010. On that day, monetary officials of the European Union agreed to a near $1 T-T-Trillion infusion into the severely anemic Eurozone economies. When the U.S. dollar opened lower in the wake of the announcement, the usual suspects jumped on the move faster than a flea in a dog park. See recent headlines below:
- "Dollar Tumbles After Euro Gets Support."
- "Dollar Slides On Euro Bailout"
- "Dollar down as fears that Greece's debt crisis could spread abated in the wake of an agreement by EU finance ministers on a 750 billion euro bailout package."
Forget the fact that 24 hours later, by mid-day on May 10, the U.S. dollar recovered its losses. The larger matter is far more important, that being: Over the last two years, the world's leading financial authorities have embarked on the largest inflation-creating crusade in all of history. To wit:
Since the bailout binge began in mid-2007, the U.S. government alone has dished out $12. 8 trillion in cash injections, an amount equal to 90%-100% of this country's annual Gross Domestic Product. Also, since September 2008, the Federal Reserve has slashed interest rates to a record low of 0-.25%.
Yet during much of this period -- including the past six months -- the U.S. dollar has experienced remarkable bouts of strength. To get a visual idea of the buck's ongoing resilience to the global money pump, take a look at the following chart. It plots the U.S. Dollar Index since May 2008, alongside the most significant bailout measures and stimulus by the U.S. and foreign governments over that period.
As for the U.S. dollar's most recent advance -- its six-month long winning streak since November 2009 -- well, it's no secret how unprepared the mainstream community was for the dollar's comeback. November 2009 saw bullish dollar sentiment plummet to just 3%, an all-time record low. Still, while the masses were fitting the currency for a coffin, Elliott Wave International's team of analysts foresaw a powerful rebirth in dollar strength via these insights:
- (One day before the dollar's low) November 25 Short Term Update: "The U.S. Dollar Index is making a 'final probe' to complete the wave structures. When viewed in the context of the daily chart, the decline from the November 3 high still looks best as a fifth wave, which is an ending wave. A rise above 75.88 level will be the initial signal that a low is in place."
- December 4 STU: "A Bottom in the U.S. Dollar Index. The initial leg of this turn up should be sharp, as overleveraged dollar bears are forced to cover their position."