Complete the following sentence by choosing the correct response from the list below: The U.S. dollar plummets to a record low against the euro on__________________
a) higher-than-expected surge in first time jobless claims
b) a double-digit drop in the shares of mortgage giants Fannie Mae and Freddie Mac
c) a fall in U.S. consumer confidence to a 28-year low
d) ongoing turmoil in the U.S. credit market.
Answer: According to the mainstream experts, “E”: all of the above. In fact, these are the exact reasons cited by the fundamental pros back in mid-July -- when the dollar was indeed plunging to a historic low against the euro.
And as far as they could see, the U.S. currency would kick the “buck”et so long as these bearish concerns remained unresolved. Here, the following news items from the time say plenty:
- “The US Dollar’s reign as the world’s reserve currency is about to come to an abrupt end.” (July 11 Daily Times)
- “It feels like we’re going back into doom and gloom all around.” (July 11 Reuters) “This has helped the euro bulls to get back the ascendancy.” (July 15 Bloomberg)
- “Financial experts say there’s no end in sight to the slide. The traders we talk to have a grim outlook on the US dollar’s future overseas.” (July 17 Hartford Courant)
Yet in the months following the dollar’s decline to a record low, the slew of negative news did not go away. If anything, it grew worse. Case in point: Jobless claims continued to rise, alongside a five-year high in the U.S. unemployment rate. US consumer confidence dipped even further to a 40-year low. And, the shares of Fannie/Freddie continued to crash, triggering the biggest financial bailout of all time.
Still: from its July 15 nadir, the U.S. dollar took step one of a powerful uptrend that has seen prices rocket to an 11-month high against the euro.
Bottom line: Fundamentals called for the dollar’s precipitous drop (and euros powerful rally) to persist. Elliott Wave patterns DID NOT.
In the weeks prior to the greenback making its final bottom, the July 2 Currency Specialty Service went on high alert to the Euro/Dollar Index’s downside potential. At the time, Elliott Wave International’s chief currency expert Jim Martens warned: “The rally underway since late 2005 is nearly equal the prior advance. Equality measurements are common and we’re watching carefully for evidence of a reversal.”
Soon after, the July 18 Currency Specialty Service presented the following close-up of the Euro/Dollar Index (Some Elliott Wave labels have been removed for this publication) -- alongside the following insight:
“The push above 1.6020 satisfied expectations… A correction of the larger sequences would likely dip into the lower 1.40s. Bottom line: The upside potential is becoming limited while the risk the downside is rapidly increasing.”