U.S. Dollar Starting its Comeback in Anticipation of a Better President.

For the past few months economic fear has hung like a dark cloud over the U.S.  and it seems that everyone feels pessimistic about the near future of the greenback.  However, common sense and history have always shown that when society as a whole reaches its peak of widespread bearish sentiment about any financial equity, it is almost certainly near the bottom.   That is why the majority of traders are always most bullish at the top of a market and bearish at the bottom which is the opposite sentiment for profiting in a market.  I can clearly remember in December of 2004 when every article I read warned of doom and gloom for the U.S. dollar for the coming year.  That turned out to be the low for the U.S. dollar for the next 2 and a half years and not until July 2007 did the dollar ever go below the low of December 2004.   This chart shows that time as a high for the EUR/USD Forex spot market.   Keep in mind that this chart shows the inverse of the dollar's value.   When the U.S. dollar is going down in value Forex traders buy that currency pair to make a profit while it is going up.

Another thing to consider is that this is election year.  Markets are always driven by social mood.  When we have a presedential administration that creates fear in society it causes a bearish market.  As Robert Prechter of Elliott Wave International has demonstrated so well in his documentary, History's Hidden Engine, social mood has created cycles in financial markets for decades.   Just the fact that the coming election must bring a different President is enough to start a new cycle of optimism which then becomes bullish sentiment in the financial markets.  It is not likely a coincidence that the dollar is at a record low this close to the end of the Bush administration. 

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