2011: The Year of the Euro 2012: The Year of the……

• Posted by Robert Sinn
• on December 29th, 2011

2011 can arguably be called the year of the euro, a year in which the common currency went through various cycles of euphoria (early may 1.4940 $EURUSD) and panic (early October) before ending the year not far from where it began. The eurozone crisis has captured global markets attention like no other story during the 2nd half of 2011 and many are calling for an end of the common currency – Just as it began the year, the euro is very much out of favor and the dollar ($DX_F, $UUP) has once again managed the seemingly unlikely feat of reclaiming the role of being a bastion of stability.

 

There are moments in time which a market participant/observer simply never forgets – the late April/early May dollar bloodbath was definitely one of those moments for me. I can recall tweeting one morning (I believe it was actually the morning $DX_F bottomed) something to the effect of “the dollar is a national embarrassment”, you can rest assured I wasn’t the only one expressing such sentiments at that time. I also recall the silver mania of April/early May (which was highly correlated to dollar weakness), there were the professional bodybuilders at my gym who were fully invested in “physical silver” and proclaimed that the dollar would soon be “worthless”, then there were the lawn maintenance guys who wanted to be paid in silver coins instead of dollars.

 

The dollar was HATED at the bottom in May 2011, now it appears to be the euro’s turn to be hated in 2012 – I expect the growing bullish dollar sentiment to carry into the new year which will most likely lead to a further rally perhaps to as high as 84 on the Dollar Index. However, once the dollar bulls boat gets fully loaded I expect the usual combination of unforeseen events (larger than expected Fed policy actions? The eurozone debt crisis abates? Chinese yuan gains a larger international role?) to rain on the bulls parade and the dollar will come tumbling back down to earth. Although, I must say the dollar looks very strong as we enter the new year:

 

While the dollar looks poised for higher levels in the short term, a rally up to 84 would be nothing more than a dead cat bounce in the context of a much longer term bear market:

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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