The Declining Dollar

There are several important observations to make from this chart. First, the dollar is in a major bear market. It peaked at 120.97 on July 5, 2001 and has been declining ever since within the major downtrend channel delineated by the red parallel lines.

Trends do not change unless there is some solid fundamental reason for them to change. There is only one way to strengthen a currency - raise interest rates. The Federal Reserve again failed at its FOMC meeting this past week to raise rates. So the only logical and prudent assumption is that the downtrend in the dollar will continue.

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Given that the Dollar Index is now sitting on the bottom line of that uptrend channel, it is peering over the precipice. The dollar may get pushed over the precipice this Thursday if the European Central Bank raises euro interest rates to fight the worsening inflation menace.