Wednesday, October 14, 2009

The Great FED Divide Will Kill The U.S. Dollar

The really sad-looking chart above is what happened with all the currency ETFs today (from our Live Tracking site), as a result of the FOMC minutes release. All currencies went up -> the USD went down further.

The U.S. Dollar today dropped to record lows against several currencies after the minutes were release around 2PM. It appears that all the talk from Mr. Bernanke last week was just that, talk, to prop up the sagging dollar. More likely, to pretend they are supporting the dollar, because it does look like what they really want is a lower dollar.

The minutes reveal that the Fed is divided. Several board members wished to expand mortgage-backed security purchases beyond the current $1.25T (!). They also stated concerns about the labor market and how the economy will behave without additional government aid because consumers are likely to remain cautious. Other points:

- Employment remains weak but "financial markets are broadly positive" (sure, they get to borrow at 0% and lend at 4-6% rates)
- Unemployment is unlikely to fall appreciably
- Recovery to be quite restrained
- Subdued and potentially declining wage and price inflation.

They also made several projections for declining unemployment, which we know are a total joke as for accuracy.

The issue is that the disagreement within the FOMC suggests that they will lag in exiting from their easy monetary policies, as in they will do it after other countries. Also, the reference to subdued and declining wages and inflation opens the door to more easing. This can indeed kill the dollar - for good.

Look at the green triangle alerts genearted today.


(click to enlarge please)



And Red triangle alerts on USDX (we posted these earlier today):

Trends and alerts obtained with INO's Marketclub Triangle tool. MarketClub Trade Triangle Tool (access free trial) .

Also, please take a look at our earlier post on 5 ways to protect against the USD - going up or down. Currencies are chaotic, extreme caution is warranted.

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