Where would the USD go now?

A question that concerns most of the students that would be furthering their studies in the US would be whether the US dollar would fall further or it is time to buy USD in bulk now.

The causes for the fall in the USD is quite clear. Firstly rate cuts by the Federal Reserve have caused investors in other countries to sell USD for higher yielding currencies like the Pound or Euro. Secondly, there is also talk about China diversifying its foreign currency reserve from only lending money to the US and in General Motors

Inflation has already started after the Fed cut interest rates. As inflation would hurt the market, a rise in interest rates would do the same. So the boom and bust circle would most probably come into effect for now. But if stocks continue to fall, much more money would go into bonds and consumer spending would decrease as their money get lock in bonds. The fall in stocks would also signal an economic slowdown and discourage corporations from spending. Inflation would be reduced and the USD would rise again. If it was me I would buy some USD now.

About the Dow Jones chart.

The Dow Jones chart is taken from Yahoo Finance, and clearly it changes as days past. The post is written on the 6th of November 2007, according to the chart at November 6, 2007. Please note.

Caution !

Notice the red 20-day moving average and the orange 50-day moving average.

These two moving averages cross each other at alternately after some time. First the 20-day MA was below the 50-day MA, then it crossed to the top. Now it seems that they are ready to cross again, signaling the start of a downward trend. At this stage it is quite impossible for the Dow Jones Industrial Average to suddenly reverse this course. So be prepared for more downward movement.

The problem is how long the 20-day MA would be below the 50-day MA. It could be short and shallow, but it could be long and deep. Since winter is close and the demand for oil would rise, I fear that inflation statistics would triger a selling rush, as gasoline and heating oil prices are heavily weighted in inflation statistics. Plus the dollar has been inflated by the reduction of Federal Reserve rates. It would be interesting what the Federal Reserve would do at that time. If interest rates were increased, the US economy could go into recession, but if inflation was not kept in check, no one could keep them in the payroll.

Of course I hope the probable downtrend [of course I'm guessing] would be short, and some sort of stocks would rally enough to cover the losses and give a picture of a renewed run. My tuition fees depend on it.

Unreasonable Wall Street.

Wall Street certainly was turbulent last week. The reports were quite fake to me, as investors seem to only focus on certain issues surrounding the American sub-prime morgage and financial companies. Institutiona investors out there are certainly having a good time just picking stocks out of the blue. I once doubted my prediction that 2007 would mark the downturn of of global markets. It seem to have partly materialized, with indexs recording corrections in the second part of the year. But these corrections have given a new light of hope to investors, since corrections means gains to some. I fear for my life that this would be instead the deep breath before the plunge. A sign that institutional investors are alighting their stocks.

When institutional investors sell their huge amount of shares, certainly there would be downward push on stock prices, and if they do this too fast they could not maximize their profit. So the startegy is simply to maintain the stock price. They could achieve this by first selling a large amount of stocks, then buy back a small amount before the day ends to pull the price back to where it started. But of course this is hard to detect, as indexs conbine the volumn of numerous stocks. Only individual stock volumn anaysis could give a hint or two on what others are doing.

I personnally think that we should be looking out for signals indicating a downward trend. Certainly the market has to go bust before it could boom again. The Federal Reserve would do everything to the book just to keep their jobs, because I just wonder why the Federal Reserve next move are so easily predicted.