US Dollar Weakness? A Contrarian View..

The main theme of the markets for the past four months has been a transformation from a bull market to a severe bear market.  Starting with the QE2 announcement by the Fed in November 2010, several emerging markets (China, India, Colombia, etc.) made their peaks and have since been forming a very bearish sequence of lower highs.  Nearly all risk assets have since joined them in establishing downtrends, with the most lagging assets such as the S&P 500 having set new highs into February.  This past Friday, the US Dollar index set a new low around 75.5.  This weakness is misleading as the majority of this move is due to strength in the euro.  The currencies of commodity countries such as Australia, Brazil and Canada, which are much more important in forecasting the future direction of the market, have been forming a very bearish pattern of lower highs.  I expect this pattern to soon accelerate downward and result in lower prices for these currencies and strength in the US dollar.  The behavior of commodity country currencies is a leading indicator in the financial markets, and these bearish patterns have severly negative implications for risk assets worldwide.    I expect the markets to be very weak in the short & intermediate term.  However, it must be noted that periodic sharp upward bounces are most common in severe bear markets.  This type of contrarian behavior helps the market to ensure that the maximum number of amateur participants will always lose money.