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The Abused Dollar

September 4, 2009 – 9:50 am

Most experts are calling for a weaker dollar. Everywhere our poor dollar is being trashed whether it is by stock analysts or economists. No one has a good word for the world’s reserve currency. There has been talk of China wanting to reduce its dollar reserves and OPEC has hinted at wanting to trade oil in a basket of different currencies instead of in dollars.

This widespread belief is likely to cause the dollar to strengthen, not fall. I know that sounds wrong but very often when everyone believes something is going to happen in the stock market, the commodities market, gold, or currency just the opposite occurs. It’s a simple concept really. When you have a belief in the various markets, that belief is borne on the backs of people who trade those equities. They sell if they want out and everyone is out because everyone believes they should be. Those that wanted out are out. The same is true when everyone wants in. By the time it’s a widespread belief the reaction is complete. Therefore, in the U.S. dollar’s case, there is no one left to sell the currency; they sold it already. The contrarians start to come in and they push the price up when everyone is sure it’s going to fall more.

Therefore, in the short term the dollar is probably going up.

Good Trading
Steve Peasley

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