The U.S. dollar has confirmed a break below the 200 day moving average. What is really troubling is how the stock market is not going up even though the dollar is selling off. I reported several months ago how the dollar and the S&P 500 had decoupled from the dollar goes down, stock market goes up, relationship.
Folks, this could be why the Federal Reserve is in such a race to taper and cut back on QE. They have destroyed the value of the U.S. dollar and countries around the world are making big moves to remove the dollar’s world currency reserve status. Take a look at the chart below.
Notice how the 50 day MA acted as resistance on the last swing move up and then a rocket plunge down right through the 200 day MA. The next major support level is at $80.50.
We all know that printing trillions of dollars and exploding the money supply was going to eventually have consequences. The Federal Reserve has aggressively debased the currency and exploded the M2 money supply and we all knew that one day, this was going to end badly.
If we zoom out the chart on the U.S. dollar (see below), we can see that a megaphone top has been put in.
In the coming months, if the dollar breaks the lower trend channel line of the megaphone top, we could have a huge plunge in the dollar all the way back to test the 2011 bottom.
Interest rates are going to surge if that happens. The Federal Reserve will have to inject even more stimulus than $85 billion a month to try and regain control over runaway yields and inflation. This will only increase the Fed’s balance sheet at a faster rate than $1 trillion a year, cause the money supply to grow even faster, and cause the dollar to fall even further.
If you think the megaphone top is isolated to the U.S. dollar and thus it will not have a direct impact on the economy, think again. Look at the housing index chart below.
The same megaphone top pattern on the dollar is also showing on the housing index chart. Here’s the connection between the dollar and housing. When the Federal Reserve first hinted at tapering in May of 2013, bond yields began rising. The U.S. dollar also rose because tapering means less money printing and dollar devaluation. As the 30 year bond yield soared some 20%+ over the next 8 weeks, housing dropped because the cost to buy a house and finance it over 30 years exploded higher.
Get ready folks, it looks like the next financial catastrophe is just around the corner.