A Mighty US Dollar Warning

-Jamie Saettele

@JamieSaettele

The following is an excerpt from chapter 3 of Sentiment in the Forex Market (makes a great gift!).

A major magazine would not devote its cover story to a financial market unless the story in question was considered newsworthy. A story (especially one about the value of a currency) is not considered newsworthy to a major magazine unless the public is obsessed with the story, and an obsessed public defines extreme sentiment. Since sentiment extremes accompany market turns, by association, major magazine covers are contrarian indicators and signal market turns.

The Economist magazine just published this cover.

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We’d place greater importance regarding a USD top warning if this were a Time cover.  There is a reason for that.  The Economist is a dedicated financial/political publication.  Time is a general news weekly.  Time venturing into market themes indicates that underlying market psychology is entrenched to the point that it’s reached ‘general news’ status and is therefore extreme.

The following are examples (most are The Economist and several are the first week of December publications) of FX themed magazine covers.  I’ve included quotes from some of the articles.  It’s interesting to read what was written at major inflection points.

I can’t find a picture of the March 2, 1985 The Economist.  ‘Superdollar Overdoes It’ was on the cover with a picture of Superman and a $ on his chest.  The all-time DXY high was made on February 26, 1985, before the Plaza Accord.

We were fortunate enough to buy the low tick in EURUSD last week and this latest revelation warrants consideration of a more aggressive approach.

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To The Rescue – November 13, 1978 Time

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Superdollar Overdoes It – March 2, 1985 The Economist

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Euroshambles – September 16, 2000 The Economist

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Many voices are now proclaiming that the single currency has ‘failed’ and that Europe’s sickly economies are doomed to be left behind by a resurgent America—and they do not come only from hardened British Eurosceptics. Recent polls suggest that support for the euro has sunk to new lows in Germany, and the Danish referendum that is being held later this month on whether to join the euro now rests on a knife-edge.

Let the Dollar Drop – February 7, 1985 The Economist

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The Disappearing Dollar- December 3, 2004 The Economist

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Rampant government borrowing, furious consumer spending and a current account deficit big enough to have bankrupted any other country some time ago. This makes a dollar devaluation inevitable…why would anybody want to invest in a currency that will almost certainly depreciate?

The Sadness of Japan – February 16, 2002 The Economist

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There is no single solution to Japan’s ills: neither a depreciating yen, not monetary expansion by the bank of Japan, not nationalism of the banks…the government needs to do all of these…All measures will be painful, in their different ways.

According to this article, the yen had to depreciate more and it was going to “be painful.” Not only did the yen not depreciate, it appreciated—a lot.

The Great American Downgrade – August 15th, 2011 Time

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The Falling Dollar – December 2nd, 2006 The Economist and The Panic About the Dollar December 1, 2007 The Economist

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