Jags,
Sometimes it seems like everything sends the US dollar up. This, of course, is the real footprint of a bull market - when all news is good news. Don't be fooled into thinking there isn't a flip side to this. There are economic forces building against the dollar and these forces cannot be held in check forever.
I remember another time that the dollar was in a much bigger bull market, during the early 80's. From mid 1980 until February 1985 the dollar nearly doubled in value. At nearly the peak of this move, in their October 8, 1984 issue, "Business Week's" cover story was titled, "THE SUPERDOLLAR- IT'S RESHAPING THE WORLD ECONOMY- AND COULD LAST A DECADE". I still keep the article in my files of bad and untimely predictions.
Some of the points in the article could have been written today. The essence of the piece was to try to give reasons why all the "other factors" like investment flows, flight to safety, etc. would overwhelm the large trade deficit. Familiar isn't it?
Now that the United States is a debtor nation, each year that our current account is negative increases the volume of investment dollars that must flow into the country to balance out the outflows from trade, interest and dividends. Foreign investors have been twice blessed with their holdings of US assets the past several years. While the underlying assets have increased in value the increase in the dollar has added to the total return. This of course attracts more money as the virtuous cycle feeds on itself. Sooner or later however, the current account numbers will become too large. The dollar will flounder and then founder. The cycle will be broken and with investment flows unable to balance the trade outflows the dollar will have absolutely nothing to support it. If you follow currency trends you are familiar with the long trends that occur. They are a trader's dream! The reason of course lies in these self- reinforcing cycles that I am attempting to describe.
I predict that when the dollar is moving down, all the things you mentioned in your post will reverse. If interest rates are high, it won't attract investment, it will only make recession worries worse. If interest rates are low, people will say they aren't high enough to attract foreign investors. All news will become bad news and yes that is the footprint of a bear market.
-Robert
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