Access to foreign exchange trading has opened up exciting trading options for the retail trader. You can now trade alongside corporations and institutions in a highly liquid market that is global, traded around the clock, and highly leveraged. Before jumping into this market, however, we must understand the factors that affect the forex market. With that in mind, STOCKS& COMMODITIES has introduced Forex Focus to better prepare the retail trader to participate in the currency market.
New President, New Trend For The Dollar?
by Brent Donnelly
Will the US eagle rise from the ashes of the economy?
A new US President will most likely mean a new trend for the US dollar going forward, and it is time to start positioning ourselves for a major, multiyear dollar rally. Many factors are moving in favor of the greenback as the global macroeconomic landscape changes, the subprime crisis ebbs, and the market now expects interest rate hikes from the Federal Reserve before the end of 2008. One of the most important -- but least discussed -- dollar-bullish factors is the upcoming election of a new President of the United States.
The end of George W. Bush's eight-year term as US President could be a significant catalyst for a major reversal in the US dollar. Historically, the dollar has oscillated around its long run average of 100.22, tending to make cyclical peaks and troughs almost exactly as a new President takes office. Take a look at Figure 1 and you can clearly see that since the dollar went off the gold standard in the early 1970s, every new President has represented a major turning point for the dollar. In Figure 2, you see the dollar's performance under each President.
FIGURE 1: THE US DOLLAR AND THE PRESIDENTS OF the UNITED STATES SINCE 1970. Since the dollar went off the gold standard in the early 1970s, every new President has represented a major turning point for the dollar.
FIGURE 2: DOLLAR'S PERFORMANCE UNDER EACH PRESIDENT. There's a pattern of dollar up and dollar down days. A change in the Oval Office does affect the US dollar.
Originally published in the October 2008 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2008, Technical Analysis, Inc.
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