In October 2013, after the dollar had reached our long-held 79.60 target, we naively opined:
The dollar finally reached our 79.60 target [see: Sep 20 Update] overnight and should see a bit of a technical bounce here at a large scale .886 (white) and medium scale 1.618 (purple.)
It wasn’t a completely ridiculous call — just naive. DX had recently broken down through a long-term channel bottom (red below) and an even longer-term channel midline (in white.)
We observed that a declining dollar in the US — a net importer — usually leads to an increase in CPI. This was troubling, as it seemed the dollar was due to fall further at a time when inflation had already bounced off long-term lows.
I suppose someone in the central planning control room was thinking the same thing. Because, they put a floor (dashed yellow line) under the dollar right then and there.
As we discussed yesterday [see: Those Wacky Central Bankers] this was not a random occurrence. Along with oil’s take down, it was a carefully orchestrated exercise that — among other goals — would shift inflation from the US (which wasn’t prepared for it) to Japan and the eurozone.
By keeping inflation under control, interest rates could also be kept at a manageable level — an important issue when a return to historical norms would triple the country’s annual debt service.
Equally important, a plunging yen would keep the yen carry trade alive and stock prices on an upward slope. For details on the BOJs role in inflating markets, see: Invasion of the Market Snatchers — a 3-part series which began today.
Nothing lasts forever, as they say. And, the dollar is approaching its next major hurdle.
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