My proprietary timing indicator has just given a buy signal for the U.S. Dollar Index. In the midst of many prophecies for a collapsing dollar in 2007, the Dollar Index has quietly risen from its December low of 82.35 to the current level of 85.28, and I am projecting that the index will rise to at least the 87 level by February. There is likely to be resistance at 87, but if that is overcome, the index could rise to 90 by June.
The major currencies have been strong against the U.S. Dollar Index until recently, with the exception of the Canadian Dollar. As this chart indicates, the Loonie has been in a downward spiral of its own since November, due in large part to the sharp decline in the price of oil.
A rising dollar implies that U.S. short-term interest rates will not be cut in the near future and that they could increase. A rising dollar would reduce the cost of goods imported into the U.S., but it would also mean less demand for goods exported from the U.S. and lower profits for the big American multinational corporations.
If some unexpected geopolitical event should disrupt world oil supplies, an attractive speculation for U.S. investors would be to immediately buy the Claymore Oil Sands ETF (CLO.TO), traded on the Toronto Stock Exchange, to achieve double benefit from the rising oil price together with the Canadian Dollar appreciating against the U.S. Dollar.