Gecko Global Analytics

The Dollar Index
Jan 05 81.06
Jan 06 84.44
Feb 06 85.22
Mar 06 85.17
Apr 06 84.05
May 06 80.77
Jun 06 81.66
Jul 06 82.09
Aug 06 81.33
Sep 06 81.75
Oct 06 82.52
Nov 06 81.62

There is almost a magic number to the dollar index. Since the U.S. dollar became a fiat currency in 1971, the U.S. dollar index has generally stayed above 80. In fact, 80 is like the major support for the dollar index. It has only traded below 80 for 13 days of its 34 year history. So if the dollar should fall below that level and do so for a significant amount of time, our currency might be in real danger of a free fall. Remember, there are major currency players all over the world who look at long term charts and should they see the dollar fall below 80 for a significant period, it’s a danger. And should it fall below its all time low of 78.33, then every currency trader in the world, every hedge fund, every derivative issuer, every banker, and every holder of US Dollars and US Dollar denominated instruments of any kind would literally be flying blind. (Incidentally, I track the major currency dollar index and not the 17 major trading partner’s index).

With that little scare in mind, and many people are aware of it because of the IMF evaluation of the dollar, let me remind you that the dollar has not fallen below 80. More importantly, there is a lot of fear about the dollar and that usually signals a turning point. And perhaps most significantly, the cover of the Economist magazine recently features the falling dollar as a major headline. This is usually means that the dollar is due for a rally.

Right now there is no currency around to replace the dollar. It’s not going to be the Euro and I don’t think a major Asian currency becoming the world’s reserve is very close.
Van Tharp.