The Chart du Jour
Note as well how perfectly the seemingly random "chop" of the British pound fits when one draws Fibonacci bands down to 1.4879. This leads us to strongly believe that we are headed there. Perhaps at long last we might even get a three-wave down in the pound someday soon.
Don't be fooled that a strong dollar should necessarily equate to strong equities. Its rise already is one factor in the relative poor performance of companies such as Caterpillar and Deere (let that read the DJIA) compared to the less dollar-sensitive internets. Britain is already slipping toward recession because its currency has remained so firm for so long compared to its weaker European bretheren.
Perhaps what is happening in Britain now is a precursor for what will follow in the U.S. after our currency remains relatively strong for a considerable time globally. Eventually it hurts, and the U.S. has never been one to take such strong-dollar induced pain particularly well. Instead, we typically hear cries to ease and devalue, but this time -- faced with a U.S. consumer who just won't stop consuming -- the Fed can't.
The dollar rallies, but by that rally it cuts off a slice of our corporate profitability. Higher rates slice off another chunk. Soon the Fed gets what it wants: a cooling off, but not before equity profitability and valuations suffer first.
Yes, we can be bearish on more than one thing. At this stage of the game, the British pound pictured above is one of them.
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