The release of the weak GDP number last Friday, July 29th, 2016, caused a significant drop in the dollar. I do not believe investors will look at the dollar as a safe haven any longer. They flocked to the dollar because they thought that the Fed would raise interest rates later this year, thus producing a stronger dollar. After seeing Friday’s numbers, the chance of that happening is near zero.
As I had stated last week, the Fed would not raise interest rates before the U.S. presidential election. Instead, the Fed would do everything possible to be accommodating so as to make sure that the economy and stock markets exhibit signs of strength while entering into the election. The Fed announcement last week reflected precisely that. There would be no change, nor increase, in short-term interest rates.
On that news, the dollar fell hard, and we were short the dollar with an inverse ETF, PowerShares DB US Dollar Bearish (NYSE:UDN), and, consequently, made a very quick profit for the sharp drop in the dollar.
My longer-term chart for the dollar is very bearish. With the dollar near 97 right now, there is a long-term pattern that projects a move down to the 75 level sometime next year.
A big decline for the dollar does not bode well for interest rates or the economy. So, with the dollar about to begin a major decline, gold and silver will be a very nice place to be invested.
Last Friday’s trading action was all about the GDP numbers. They were horrible! The data showed that the US economy only grew at a disappointing rate of 1.2% within the second quarter. This combined with a downward revision to the first three months of the year to produce an average growth rate of just 1 percent.
Wall Street expected a 2.6% increase. Therefore, you have to wonder about what the Fed was saying earlier in the week when they expressed confidence in the economy. The economy continues to contract and is not growing as the government would have you believe. With interest rates near zero, we should be growing, but we are NOT. The economic numbers have failed miserably. While the GDP growth remains “anemic”, there will be no wage increases or many new jobs created.
In Japan, the BOJ added some measures but did not satisfy the markets’ hunger.