Is it possible that the Dollar may not fall?
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This is the other side of the coin. While the general expectation is that the Dollar is bound to correct its uptrend, we have to bear in mind the following points:
Since the advent of the Euro, a lot of money has been lost by people who have bought the Euro on the premise that the Dollar's strength, which has been perceived to be based on a Stock Market bubble, had to necessarily end sometime. This perception has provided invaluable traction , which aided the Dollar's ascent.
The Dollar has been strong against the Euro (or the Euro has been weak) not only because of the strength of the US, but because it served Europe's interests to see the Euro decline. Thus, the question arises whether Europe will now be willing to concede the benefit of a falling Euro away? If Oil prices do not go out of hand, Europe may not need to worry about importing inflation and thus may not mind a weak Euro
It may be possible that Information Technology has in reality raised American productivity to a new plane and as such, the rise in the US Stock market may not be such a bubble after all.
Before we examine these issues, we look at what the Charts have to say.
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The Current Bull Run in $-CHF
The current Dollar strength comes after almost a decade long period between 1987-88 to 1998-99 when the Dollar formed a "Rounding Bottom", which should culminate in a move to 2.0
The Dollar's strength derives from a structural shift of factors in favour of the USA. These are (a) the emergence of the USA as the Unipolar Superpower; (b) the inability of Europe and Japan to act as counterbalances; and (c) unparalleled success of the USA in harnessing the benefits of IT
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Comparing Uptrends
We have superimposed the current Uptrend over the uptrend that occurred from the period 1978 to 1985 in order to compare them.
Oct '78 (1.5365) to Feb '85 (2.8045) was a rise of 82.53% in 76 months.
In comparison, Apr '95 (1.1385) to Nov '00 (1.8310) has been a rise of 60.83% in 67 months.
This suggests that it is not impossible for the Dollar to rise further
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It should be noted, however that the current rise is rather steep and that in itself is a danger to the Dollar.
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