You can't look at this week's action in the U.S. dollar without having your jaw drop. We've already commented on the greenback's stunning strength recently despite several major "fundamental" factors that should have sent it crashing. Here's just a quick list:
- A 26% drop in the DJIA since the start of October – something that EWI's Mn-Wd-Fri Short Term Update justifiably called a "crash" in Thursday's Interim Report.
- Another, emergency rate cut by the Fed – down to 1.5%.
- Nationalization of mortgage giants Fannie/Freddie.
- The U.S. government's takeover of the world's largest insurance company, AIG.
- Major U.S. commercial and investment bank failures.
- The U.S. government bailout of Wall Street – with U.S. taxpayer money.
If someone told you a month ago that the dollar would GAIN with these stories in the news, would you have believed them?
And yet, today (Oct. 10), the USD staged another attack on the euro, sending the euro-dollar exchange rate down to $1.3267 in afternoon trading.
It just goes to show you yet again that the conventional economic "if, then" logic simply doesn't apply to the financial markets. Markets are moved by emotions, not cold, hard reason.
If logic was the rule, the only market that would be rallying right now is gold, the traditional "safe haven." Instead, gold fell today as low as $829 an ounce – while the U.S. dollar hit a fresh 16-month high.
In wildly emotional times like these, what you need is a method that specializes in forecasting the markets' emotional side. You can have EWI's latest forecasts for the world's biggest markets on your screen now, in minutes – here's how.