Tuesday 4 October 2011

Has the $ come to the end of its dramatic rise?

£ to $ exchange rate May to October 2011
Dow Jones support lines have been breached and we must hold our breath to wait for a confirmation that this is not a false break out. I have jumped in with both feet and bought a range of shorts increasing the share of my portfolio dedicated to them to 16%. This makes me vulnerable to a reversal so I must keep a sharp eye on progress.

My vulnerability is shown by the way my portfolio has responded to the the reversal in precious metal prices. A decent profit on the day has morphed into a heft loss.That's what happens when you fail to diversify. Unfortunately in this market there is little else you can do.

Today's chart looks at the dramatic rise of the US$. I show it against the British Pound. The data is presented with the £ as the primary currency as indicated by the code GBPUSD (first currency is always the dominant one). In this convention a downward slope indicates that the £ is falling and the $ rising. We can see that since its low point on the  19th August the $ has strengthened by 7.5%. The chart also shows that it has twice failed to break through the resistance at $1.534 to the £ and has made a possible double bottom. This could indicate the end of its upward travel.

Some people think that the fall in gold and silver is down to the strength of the $. If they are correct and we do indeed get a retracement in $ value perhaps this will accelerate the recovery in gold and silver prices.

This morning I went to an interesting lecture by Anne Sebba on Jenny Churchill, Winston's mother. Jenny was a feisty woman and her marriage to Winston's father was a true love match. Through her life she had a powerful sense of her own destiny. For example she had no doubts that the she and Randolph would marry and Winston was conceived two months before their wedding. She had taken a great risk by sleeping with him before they had tied the knot in those Victorian days. Through her life nothing cowed her and she taught her son to believe in his own destiny, in his turn. So, the lecture argued convincingly, the spirit that led Winston to hold the line through the Second World War was a spirit passed to him by his American mother.

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