The strong rally in the US Dollar since the past year has led to commodity markets selling off as investors pursued the equity markets led by years of accommodative monetary policy in a search for higher yielding assets. However, what goes up must eventually come down and the US Dollar is no different. With the markets trading at extremes the markets are likely to see a correction in the near term as the US Fed prepares for interest rate liftoff this December. Given the current monetary policy conditions and the markets being prepped for a rate hike, there is further upside to the UUP while the price of Gold continues to decline to new multi-year lows.

A bunch of dollar bulls, euro bears, have been hammered so far today (time left of course).  Did we just see a major head fake from Mr. Market?  There were a lot of one-way bets…Is the price action also telling us Fed Chairman Yellen will disappoint in some way?  I guess we shouldn’t try to get cute with that stuff and stick to our knitting which, in a sentence is this: Trade what the market gives us and don’t try to forecast price action based on fundamental events.  

That said, I have shown an alternative setup in this chart showing the potential for a correction lower in the dollar, back toward 92.00 [about 7% which is big when calculated in pips]…

Regards, 

Jack Crooks
Black Swan Capital

I have been warning that government can do whatever it likes and declare anything to be be a criminal act. In the USA, not paying taxes is NOT a crime, failing to file your income tax is the crime. The EU has imposed the first outright total asset reporting requirement for cash, jewelry, and anything else you have of value stored away.

As of January 1st, 2016, ALL GREEKS must report their personal cash holdings, whatever jewelry they possess, and the contents of their storage facilities under penalty of criminal prosecution. The dictatorship of the Troika has demanded that Greeks will be the first to have to report all personal assets. Why the Greek government has NOT exited the Eurozone is just insanity. The Greek government has betrayed its own people to Brussels. The Troika will shake every Greek upside down until they rob every personal asset they have.

Greeks are just the first test case. All Greeks must declare cash over € 15,000, jewelry worth more than 30,000 euros and the contents of their storage lockers/facilities. This is a decree of the Department of Justice and the Ministry of Finance meaning if you do not comply, it will become criminal.

The Troika is out of its mind. They are destroying Europe and this is the very type of action by governments that has resulted in revolutions. The Greek government has betrayed its own people and they are placing at risk the viability of Europe to even survive as a economic union. The Troika is UNELECTED  and does NOT have to answer to the people. It has converted a democratic Europe into the Soviet Union of Europe. The Greek people are being stripped of their assets for the corruption of politicians.

This is the test run. Everyone else will be treated the same. Just how much longer can the EU remain together?

The Dollar surged to a Level Last Seen March 2003 as Fed Chair Janet Yellen yapped about the strength of the US economy in a speech to the Economic Club of Washington.  

Monday morning the International Monetary Fund (IMF) admitted the Chinese yuan to its international basket of reserve currencies, which comprises the U.S. dollar, the euro, the Japanese yen, the British pound and now, the Chinese yuan, or renminbi.

Yet, the U.S. dollar still reigns supreme and continues to appreciate in value. 

So much for all the pundits calling for the death of the dollar when the yuan gained official reserve status!

So what does it all mean? Will the yuan eventually kill the dollar? 

I’ll answer those two questions with one simple reply: There is — in no uncertain terms — no way the dollar will ever be overthrown by the Chinese yuan, or any other currency for that matter. 

In fact, per Bloomberg and according to the IMF itself, the new official reserve basket will have the composition you see in the bar chart here. 

 
Click image for larger view

As you can clearly see, the euro, yen and the pound will be impacted the most, not the U.S. dollar.

In fact, after official trading of the yuan as a reserve currency begins — not till Oct. 1, 2016 — the U.S dollar’s share of the IMF basket will fall from 41.90% to 41.73% …

A tiny decline of just 0.17%. How is that ever going to destroy the dollar?!

The IMF yuan decision is just a symbolic move
to recognize the rising status of China.

That’s all it is. Period. Even when it comes into effect 10 months from now, it won’t make a dent in the dollar. It can’t. In order to have a major impact, China must also have a major, multi-trillion-dollar equivalent international sovereign bond market — so investors, including countries who want to hold yuan in reserves — can earn some interest.

But China does NOT have a deep, international sovereign debt market. So it’s unlikely any major institutions, governments and central banks included, would want to park much money in the yuan.

On top of that, the yuan accounts for a mere 2% of global payments and foreign exchange transactions …

Compared to the U.S. dollar’s 45% share of payments and 87% of foreign exchange transactions.

Instead, it is far more likely that 
the biggest loser will be the euro.

That should be clear to anyone who has even the slightest awareness of what is happening to the global economy.

It’s simple: While the U.S. economy is muddling through, Europe — the region with the second largest share of the reserve currency basket, the euro — is crashing and burning. 

So who in their right mind — individual investor, financial institution, government or central bank — 

Would want to keep money in the euro, or for that matter, switch from the euro to a still unproven, new reserve currency whose shares of global transactions and trade is a mere 2%?! Not going to happen. Bottom line: The euro is likely to suffer the most from the yuan becoming a reserve currency … while the U.S. dollar overall will still remain king of the hill.

That’s a no-brainer when you think it through and ignore all the fear-mongering out there about the dollar dying someday. 

Hence, for now and for the foreseeable future as deflation retains the upper hand on the global economy, STAY in U.S. DOLLARS … and do NOT buy the hype that the dollar is going to crash and burn.

That time will come, but it will not be because of the yuan or anything else. It will most likely come in late 2017 heading into 2020 …

As investors all over the world begin to question the credit worthiness of Washington, after the government debts of Europe and Japan collapse first. 

Lastly, I want you to still keep your eyes glued on gold and silver. A wee bit of a rally here is all that is needed to set the precious metals up for one more new leg to the downside and potential major lows …

From which a major new rally should begin.

Best wishes, as always …

Larry

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Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader.

Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.