Dollar prediction

Predicting the dollar

In my opinion the best way to predict the direction of the dollar is with moving averages. That is look at the average price of any currency and smooth it out with the simple mathematical technique of averaging.

The reason using a MA to for forecasting currency movements is yes the US dollar moves on fundamental in the long run, but no one can predict what the long run is.  The money supply’s expansion or contraction is dependent on how fast an economy can absorb the currency or what is the velocity of the currency in circulation.

Therefore, my general recommendation is use a 12 month moving average to see where the long run trend is pointing.

Dollar and currency market is zero sum

Besides that method, which is a known and respected method I would not try to make money from currency movements.

However, I think there is no way you can predict the direction of the dollar with certainly enough to make money.

In fact, if you could you would be the riches man in the world as the currency market and the dollar market is the largest market in the world.  Bigger than the stock or bond market combined, bigger than gold or real estate.

Here is the reason I do not recommend making money with the currency market, it is like any commodity market is a  is a zero sum game.  It is not like the stock market where you participate in the growth of the economy, through the growth of investment capital. It is not like the real estate market where land will appreciate based on development of the region as a whole.

In the currency market for every winner, there is a loser.  And every person trading currency thinks they are a genius and can predict the dollar at least greater than 50% of the time.  But if they really could predict the dollar in the long run over 50% they should leverage themselves to the hilt and retire in a year.

The truth is you can not predict the dollar.  Maybe with moving averages as price trends are expectational.

Expectational means the price contains people’s expectations of the futures.  rices are always expectational by definition.  This is basic economic.  It is not just supply and demand that determine price but expectations.  Therefore, to out guess aggregate expectations is very difficult.

What is my prediction of the dollar

It seems logical with the expansion of the money supply eventually the dollar will fall.  However, because the dollar is the dollar there are too many other factors that go into this, this might not be the case.   The dollar is a world currency that is sensitive to every political and price shock and economic number, then fueled by speculation.

Further, economics is self adjusting, meaning if the dollar falls then prices in the US become cheap relative to other countries.  The world should demand more US goods and the dollar should appreciate.

As of writing this post I think the dollar is starting to steady but there might be about another 20% risk on the downside. I think the Euro is very over valued by the way.

If you have a system or method to predict the dollar, please let me know, I would be interested.  I am an American in Europe and the dollar is of particular interest to me.

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