The what: Right now, the political debatosphere is more divided than a skin cell over the issue of To-Raise, or Not-To-Raise the US debt ceiling from its $14 trillion limit. (Deadline for a decision is August 2)
Yet, as split as the various parties are over what to do, they can all agree on one main issue: A rising deficit is to the U.S. dollar what King Kong is to a car. On this, the slew of recent news items below capture the sentiment:
- "Talks of raising the debt ceiling... saw investors abandon dollar positions, with the Dollar Index falling to near its lowest level in one month." (June 3 New Zealand Herald)
- "If the US doesn't get its fiscal house in order, the death of the dollar's reserve-currency status may come to pass." (June 15 Associated Press)
- "The greenback is weakening and the US must reduce its fiscal trade deficit ratio to gross domestic product." (June 26 keynote speech by China's fund chief)
There's just one simple problem with this logic: namely, an inverse correlation between the deficit and the dollar does not exist.
(Objective Analysis Of The Dollar: The June Financial Forecast reveals the near-, and long-term trend underway in the world's reserve currency. Get the complete story today.)
I repeat: The deficit and the dollar do NOT consistently move in opposite directions. Elliott Wave Financial Forecast subscribers have known this for years -- literally. The December 2004 EWFF presented this ground-breaking chart of the past three decades of the US Trade Weighted Dollar versus the Current Account Deficit/Surplus (as a percentage of GDP).
Here are few of the startling results:
- From October 1980 to February 1985, as the deficit emerged as the largest in well over a decade, the dollar surged 50%.
- From April 1995 to December 2000, the deficit took another huge leap and the dollar rallied 34%.
And, these later observations: From December 31, 2004 to November 2005, the deficit widened to the largest on record while the greenback enjoyed a steady, 15% uptrend.
2007: U.S. trade deficit narrowed for the first time in six years, all the while, the dollar sunk to new record lows against the euro. Also, a record deficit in 2008 coexisted with a 6% rally in the U.S. dollar index.
The list goes on, suffice to say: Fundamental analysis of the world's leading currencies is a costly detour on the greenback road to opportunity.
You can get this kind of independent, objective analysis of the U.S. Dollar every month in The Elliott Wave Financial Forecast.
* * * * * * * * * * * *
Inside the June 2011 Elliott Wave Financial Forecast ...
Risk Appetite Turns to Risk Aversion -- So What's Next?
Get Answers from the June Financial Forecast.
Sentiment is more than "passing emotion." It's an attitude which is widely shared among people who have something in common -- such as large groups of investors.
Obviously, sentiment is never stationary. It has a life of its own. And with the right tools, the trends and turns in group sentiment are measurable. With sufficient time, data, and analysis, you learn that group sentiment is remarkably predictive of group behavior.
Make no mistake: We are in that sort of "remarkable" moment right now. CONTINUE READING>>