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.
The yen plummeted from 100 to 122 to the dollar (its high earlier this week) and the euro plummeted from 1.39 to about 1.05 USD.
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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