Looking at World Currencies

December 17, 2021No Comments


Hello, and welcome to the Smart Money Dumb Money Show. I am your host, Keith Richards, and I’m the president and chief portfolio manager at ValueTrend Wealth Management. And today we’re gonna talk a little bit about currencies. So without further ado let’s get started. So what I wanna start with is a chart of the US dollar.

Now, a lot of people have noticed the US dollar has illustrated strength versus most of the world currencies. And there’s a bit of a puzzle over that because of course, the US debt is higher than it has ever been. There’s been both a COVID crisis, which has inspired money printing plus a new left-wing government that’s moved into the American system and they are very much in favor of printing money, as well as maintaining interest rates low. Now, of course, inflation has reared its head. And there is a probability of monetary stimulation backing off as we move forward through interest rate reductions, but, or I should say interest rate, raising interest rates in other words, getting more hawkish.

But that can only actually be good for the dollar and even the levels of debt and whatnot that we’ve seen come across have not impacted the US dollar negatively at all. In fact, on this chart, we can identify maybe a bit of a bottom, a double bottom process with a break of the neckline, and a target that would bring us into this first cluster of resistance, which is in the high nineties, call it 99 or so. So that’s probably a 4% or so return, maybe four to 5% return from current levels. And that’s positive. Now, again, a lot of people are puzzled over that because of the debt, but remember, other countries are printing an awful lot of money themselves. So let’s, let’s take a look at these other countries. Let’s take a look at the Australian dollar, which is basically in a free fall.

It’s coming into some level of support around 70, and these are all against the US dollar. So 70 against the US dollar, 70 cents effectively, and then, if the Australian dollar manages to find this support at 70 and holds, then it may be the beginning of the, of a recovery or a consolidation, but that’s yet to be seen. And there’s no sign of that yet. In fact, what we see is lower highs and lower lows on the chart, and that goes as well for the British pound sterling.

In fact, it’s been in a very bad free fall. It’s blown through this old level of former resistance, which should have been supported. And so this, this currency should target quite a bit lower, literally about 10% lower than it is right now.

If we look at the Euro itself, it also has been in a free fall and probably is going to find some sort of support as we get close to the COVID lows somewhere around 103, 104. We are in a minor level of support here that could in fact hold, but it doesn’t look great given that the UK, which we just looked at, isn’t looking very good itself.

Okay. We’re gonna look at the Swiss Frank, and as you can see, it’s forming a right angle triangle with a very well defined level of support, and that’s actually not such a bad thing. So rather than being a series of lower highs and lower lows, you’ve got lower highs, but now the lows are finding some level of support around 97, let’s call it. So if that can hold, it could break out to the upside. That could be positive. However, if this level of support around 97 is broken, that’s very negative. It’s to be seen, but this Swiss Frank isn’t as bearish looking as some of these other currencies.

For example, Japan, which has fallen right outta bed, a long term level of support that goes right back to 2017, the Yen, boom, it’s just been smashed. It’s finding some consolidation considerably below the old support level around 90, I should say 84. It’s around 82 right now, whether that holds is to be seen.

But the fact that long term support was broken by such a magnitude with, in fact, a gap. It should be of concern to people that are planning on becoming long in the Japanese Yen. So now let’s get to good old Canada, which is where a lot of my viewers are from. And you can see a similar pattern, not exactly the same but a reasonable pattern of support at around 78 cents on the US dollar and a series of lower highs with flat lows. So that again is the beginnings of a right hand, right angled triangle, I should say. And that can be a positive thing if, and only if it breaks out to the upside much like the Swiss Frank that we looked at. So our, our view, therefore, should be that based on the majority of currencies looking weak against the US dollar with only a couple of them, the Swiss Frank and Canadian dollar showing any hope.

I would suggest that people who are long the US dollar remain so because there’s really not a lot of incentive to buy into any of these worse looking charts or worse looking currencies at this moment. , You know, you stay with the winner until that changes and there’s been no, no change in sight. So thank you very much for watching. I hope this was informative for those of you who are interested in currencies, and I will not be doing a video during the week of the 20th of December, but I will be returning after that week to do another video. Thanks for watching.

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