Has the Dollar Hit a Major Bottom?

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"If gold has decoupled from the dollar, it might not negatively be impacted by the dollar's rally."

Many pundits are saying that the dollar is ready to crash and burn, signaling a time of mounting inflation. But some reputable sources disagree. Robert Prechter, president of Elliott Wave International, is calling for a long-term rally in the U.S. dollar. He's entitled to his opinion, but his track record gets my attention.

Prechter, famous for such important calls as the 1987 crash and the 2008 peak in oil prices, says he sees significant evidence the dollar has put in a major bottom and should rally for the next year or two, bringing down most other asset classes.

Many analysts and mainstream news sources attribute the recent uptick in the dollar versus other major currencies to an improving economy signaled by last Friday's "stronger-than-expected U.S. jobs numbers."

Prechter says the U.S. dollar has put in a major bottom but not for the reasons everyone else is pointing to. Prechter points to three factors:
  • Elliott Wave Pattern: Elliott Wave Theory looks at markets cycles in terms of wave structures that come in five parts. Five waves up followed by five waves down. Well, according to Prechter's research the pattern confirms we recently hit the fifth wave down. Next stop: up.
  • Sentiment has reached an extreme: "The Dollar Sentiment Index for the Dollar Index reports just 3% bulls among traders, an extreme level only five times in the past 20 years, usually near an important low," Prechter wrote on Aug. 5. "The last time we saw readings like this was March–July 2008, just before the dollar soared."
  • Biggest risk to economy is deflation not inflation: Prechter thinks the bursting of the latest bubble will lead to a major economic depression.
Prechter sees an immediate threat to the credit markets and debt instruments. If gold has decoupled from the dollar, it might not negatively be impacted by the dollar's rally.

Will this cause the long-awaited correction in GLD, SLV, CEF, and IAU?

The above are ETFs investors should familiarize themselves with. A potential rally in the dollar doesn't mean it necessitates an immediate end to the stock market rally.

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