09/10/2009 – Death of the Dollar, Again: Before You Mourn, See This Chart

By Nico Isaac

If you want the latest news on the U.S. Dollar Index, try a search under its new ticker symbol, RIP. —
as in, “rest in peace.” Let the record show: In the early morning hours of Tuesday, October 6, the mainstream
financial community officially declared “The Demise of the Dollar” (The Independent).
The “coroner’s report” cites these details as the causes of death:

• An alleged (and later denied) secret meeting
  among leaders of certain Arab States, China, Russia, and France which aimed for the immediate discontinuation
  of oil trading in U.S. dollars.
• And, an open statement from one senior United Nations official that proposed
  the dollar be replaced as the world’s reserve currency.

In the words of a recent Washington Post story: “The
growing international chorus wants the dollar replaced… a move that would end the greenback’s six-decades
of global dominance.”

And with that, the line between negative sentiment — AND — “EXTREME” negative
sentiment was crossed. It occurs when the beliefs about a market lean so far over in one direction, that
the boat investors are sitting in is about to tip over… Just like the last time.

Case in point: Spring 2008.
The U.S. dollar stood at an all-time record low against the euro after plunging more than 40% in value.
And, according to the usual experts, the greenback was “dead”-set to
meet its maker. On this, these news items from early 2008 say plenty:

• “The dollar is a terribly flawed currency and its days are numbered.” (Wall Street
  Journal quote)
• “It’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the world’s
  reserve currency.” (George Soros at the World Economic Forum)
• “Greenback is losing Global Appeal… the ‘Almighty’ Dollar is Gone.” (Associated Press)

YET — from its March 2008 bottom, the U.S. dollar came back to life with a vengeance, soaring in a one-year long winning
streak to multi-year highs. In the most current Elliott Wave Theorist (published September 15, 2009), Bob Prechter
presents the following close-up of the Dollar Index since that trend-turning bottom. (some Elliott wave
labels have been removed for this publication)

At a measly 6%
bulls, the bearish dollar boat tipped over. The situation today is even more remarkable: The percentage
of bulls is lower, at 3-4%, while the dollar’s value is higher than the March 2008 level.

It’s crucial to understand that markets don’t necessarily respond to sentiment extremes immediately. But,
such extremes do indicate exhaustion of the trend — which is usually the opposite of what the mainstream expects.

For more information, download Robert Prechter’s free Independent
Investor eBook. The 75-page resource teaches investors to think independently by challenging conventional financial
market assumptions.