US Dollar: Extreme Makeover?

Reality television has been the perfect visual aid for what the word "EXTREME" looks like: In the original "Extreme Makeover" for humans, Sumo Wrestler-sized people are surgically transformed into supermodels, while in "Extreme Makeover: Home Edition," broken-downs shacks are converted into McMansions.

In other words, "Extreme" implies total, radical change.

And in the financial markets, it’s equally obvious when the line from an even-keeled trend crosses into an emotional extreme. When this happens, the "face" of a long-standing trend is usually about to undergo a complete makeover.

See: The US Dollar.

In the past year, the greenback has free fallen to all-time record lows against the euro, and to multi-decade lows against other international currencies. Which is to say, the doom & gloom surrounding the buck has reached -- you guessed it -- a conspicuous extreme. On this, the following news items say plenty:

• This September, former Federal Reserve Chairman (Maestro) Greenspan said outright that the buck’s lifetime leadership could be ending. In his words: "It is absolutely conceivable that the euro will replace the dollar as the world’s primary reserve currency."
• At the same time, Saudi Arabia hinted that it might announce a break in its dollar currency peg.
• "The greenback has been caught up in a sea of fierce selling pressure," begins one recent news source. "All it can do is flail out in the open waters, growing tired and weak… The dollar is drowning and there’s no lifeguard in sight."
• "Life only has two absolute certainties -- death and taxes," adds another. Yet the global financial community is increasingly facing one more: "The US dollar will weaken, weaken, and weaken."

Sound familiar? Try: December 2004. At that time, the US dollar had plummeted over 30% to a then-record low against the euro.

Every major magazine from Newsweek to the Economist ("The Disappearing Dollar" Cover Story) AND every major mogul from Bill Gates ("The ol’ dollar, it’s gonna go down") TO Warren Buffet ($21.4 Billion short position against the dollar versus a $ZERO position in 2002) -- made their opinions clear.

YET -- on December 30, 2004, the buck took step one of a long rally that tacked 15% onto its value. By the end of 2005, in fact, Buffet’s Berkshire Hathaway Insurance Corp. had taken a $900 million hit on its bearish foreign currency investments.

At the time, our December 2004 Elliott Wave Financial Forecast recognized the earmarks of EXTREME negative sentiment regarding the dollar. In EWFF’s own words: "For the first time ever, we start with the US Dollar because the case for a bottom is an extraordinarily compelling one. The upside reversal should be measured in months, not weeks."

Flash ahead to today, and the Dollar doom drum beats on again, giving our analysts strong reason to stay alert to the currency’s every move.

And, in the three-time-a week Short Term Update, we present in-depth analysis and detailed price charts of the US Dollar Index that reveal whether an extreme makeover is on its way.