Last week, the dollar pushed decisively above a trendline stretching back nine years (see inset). This suggests that the rally begun in 2011 is gathering force for an assault on a series of descending bear-market peaks recorded over that time. The peaks are pretty closely spaced, so it wouldn’t take much of an upthrust to generate an enormously powerful, bullish impulse leg that exceeds them all on the monthly chart. That would break the back of the dollar’s 13-year bear market, effectively tightening the deflationary noose around the necks of all who are short dollars. Lest you miss the implication of this, virtually everyone who owes dollars, including mortgage debtors, is effectively short them. On the other side of the bet, of course, are bondholders. If the dollar continues to blast higher, it would imply that they, not debtors, who implicitly rely on constant inflation to easy the burden of repayment, are going to be the big financial winners in the end.
