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Dollar weakness at an end?

December 15, 2009
tags: , , , , , ,

It’s been a long and relentless beat-down for the dollar. But it looks like it may finally have found a footing and some relief from the pressure. Today we have the first higher high in quite some time, as we moved above the high from late October. This doesn’t necessarily mean it’s time to pile into dollar plays, particularly with the speed of the most recent move off the bottom. But it does seem a strong and significant sign to be aware of in the days and weeks going forward. I’ll expect some consolidation to go on in this range between 75 and 77, but who knows…..

(Click on chart to see it bigger)

Gold, though still a very real long term good idea, seems to be more and more of a “play” these days. SO much talk about gold in recent months and this last downdraft since early December doesn’t look like a particularly healthy one. It seems there are great expectations for inflation already built into this one. Today the Producer Price Index came out much higher than expected. The consensus was for an increase of 1%, but the actual number was 1.8%. This is almost double! And gold was actually down at the open, though more or less unchanged at the moment. Even a complete novice economist would think that higher prices tends to mean inflation which tends to mean gold goes up. Not this time, apparently.

I’m not a seller of gold at this point, by any stretch. But I’m also reluctant to buy it at the moment. But as for the connection to the dollar, I’d say this chart makes the potential dollar strength more believable. And the dollar chart makes the gold chart look all the more worth questioning.

One can also take a hint from Silver, the less popular sibling of Gold.  It has already fallen below its 50 MA and the recent highs from October.  Considerably weaker than the gold chart.

Copper, looks surprisingly stable perched at this loft, particularly considering how far it’s come in the last year. It is comfortably sitting just above the 50 MA. A break of this could mean a quite substantial drop back toward the 200, but for the time being, it looks good.

My TGB play has been doing even better than expected. It blew right through that $3.50 level, so I’m trying to give it a loose leash to run further. I’ve got a standing limit order to sell half at $5.20 in case of any quick intraday spikes. Stop on the rest just below $3.50

The real commodity to watch for its correlation to the dollar, in my opinion, will be Crude oil. After moving decisively above the 50 MA and to new year highs in Oct., it tried to hold the level but just drifted until it broke down into its old range. This 35 level on USO seems to be likely support and also coincides with the 200 MA which is seemingly providing an upward push. This is actually a pretty interesting long term entry.

Note that agricultural commodity prices look pretty subdued. They’ve been in a range here for quite a while. When it breaks, I’m thinking the upward movement could be fast and strong. However, if the dollar does find further strength, it’s likely this won’t happen concurrently.

Tomorrow the FED puts out the announcement regarding any rate changes or language coloring at 2:15 PM ET. Any hint of raising the rates in the near future and I suspect the Dollar will surge and the market will get crushed. I’m long SDS.

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