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Thursday, April 10, 2008

This Is Your 19th Dollar Breakdown

News this morning was bearish for the dollar -- the British Central Bank only cut rates by 25 basis points and the European Central Bank didn't cut rates at all.

If you look at the chart above, you can see the US dollar breaking down from a triangle. It looks ready to go revisit its lows from last month. So, sell the US dollar and buy gold, right?

Not so fast! If the experience of the last painful month has taught us anything, it's that the market's zigs and zags are getting bigger. Maybe the dollar will go directly to its old lows. But here is an alternate scenario:

Yes, the US dollar is breaking down from a triangle, so it should go lower. The problem is, that’s what everyone expects. So that means …
  1. It could jig lower and suck in some shorts
  2. then the dollar could rebound, the shorts get burned and cover and some other people go long
  3. then the dollar goes lower AGAIN, and the longs get burned and the shorts are disgusted.
  4. It's hard to say what will happen. But could it be better to wait and see if we get a better buying opportunity in gold?
Here are some more news stories on currency developments ...

Bank of England Cuts Rate to 5% as House-Price Slump Fans Recession Risks The Bank of England cut the benchmark interest rate for the third time since December as higher credit costs and the worst housing slump in 16 years threatened to push the economy into a recession.

ECB Leaves Benchmark Interest Rate at Six-Year High to Contain Inflation The European Central Bank kept interest rates at a six-year high today to quell inflation, even as the euro's appreciation and a credit squeeze threaten to choke economic growth.


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