When it comes to the relative value of the dollar, the last decade has been an eerie recreation of the period from 1980 to the mid 90′s. One notable observation is that while the secular bull market starting in 1980, which many are desperately trying to equate the current bear market/liquidity gusher/Keynesian circlejerk rally with, was accompanied with a 5 year long appreciation in the value of the dollar, things could not be more different now.
Also, if history indeed rhymes, look for the dollar to drop to the magical 70 level before we see both a near term rebound and another major swing up in the DXY to well north of 100 as the third iteration of the dollar cycle begins. Then again, never before has the dollar been the funding currency of choice. Which is why we tend to believe that while the downside is still in play, it will be limited, and once the trade inverts and everyone piles out of the burning dollar carry trade theater, the upswing could easily take out the 120 high reached in the last (red) cycle.
