Chart and Commentary:
US Dollar weekly chart since 2008. Weaker dollar=stronger commodities=stronger equities. The commodities bubble peaked in July 2008, note the green circle which shows when Trichet raised the ECB rates and then had to quickly back pedal from his error. Trichet raised again a week or so ago so will history repeat? Note how the positive and negative divergences play a key role over the last four years and how commodities tops directly correspond to dollar lows.
ADX shows how the down move in 2007 into the 2008 low was a very strong trend, but now, for the current move down in the dollar, not so much, in fact, the current ADX trend is not as strong as it was when the dollar was falling last year. The importance of the nearly four year 2004 horizontal support at 74 cannot be understated. The black circles show a stronger RSI as price has weakened over the last 3 1/2 years.
The reason that Chairman Bernanke is disinterested in the weakening dollar is visible by the fact that the dollar was weaker (72-74) during the prior commodities bubble in 2008; he may figure the dollar can fall another couple bucks before he would be concerned. The commodities chart are now negatively diverged which jive with the positive divergence above which says dollar up=commodities down=equities down.
The answer is coming this week, the Superbowl for the US Dollar, the FOMC meeting begins Tuesday, Bernanke has his first Q&A session on Wednesday afternoon, surely a reporter will ask Bernanke's view on the weakening dollar at 2:15 PM EST 4/27/11, so consider this to be the fourth quarter of the game. Interestingly, Bernanke will also speak after lunch on Friday, perhaps to remedy any trouble from Wednesday?
The dollar is ready to bounce but the only person in control now is Bernanke and what he says about a strong, or weak, dollar policy this week. The chart illustrates how violent the dollar price moves can be. The dollar moved up over 20% in only about four months in 2008 after the commodities bubble popped. Another 20% pop from late 2009 into 2010 as the end to QE1 was contemplated, and now, as we contemplate the end to QE2......., well, Bernanke will light the way this week, does he fumble or does he punt?
For the $USD chart google keystone speculator or view at stockcharts public charts list keystone speculator.
The US Dollar is ready to start strengthening in July. The commodities top is in and the EURO (EUO) will weaken. As much as people think the USD will lose its status as the reserve currency, it will not happen near term. There will not be a world currency (the EURO is a perfect example of why) and no one would trust the Chinese with their yuan as the world currency. Getting long the dollar makes sense now (we shall see what BB has to day about it on 4/27) and I expect the EURO to start declining quickly in the next 2-3 months, if not sooner. The US equities market will start to weaken and I would anticipate a double digit correction over the Summer of 2011 with no significant recovery in the Fall of 2011.
excellent comments. I sold the last of my gold last week at $1,497 and started to lighten on NLY (short interst rate sensative)and VTI. VTI is an exellent way to "dance close to the door" IMHO. Next week may be a turning point to get out of equities and into UUP. But I am affraid to go too heavy on UUP, I have only been following UUP since Jan and it has fallen thru several points I would have bot if there were signs of support. Good luck and thanks for the insight
Interesting commentary, keyboth.
The crushing of VXX to levels near those of 2007 also adds to the tender.
Wednesday is certainly a key, not only for the Bernache news conference. It's the day after T+3. Tuesday is the last day to buy "winners" and have them on the pages for April. None of the hedge hogs chasing performance will want to sell before Wednesday, yet Bernache's comments have the power to make them wish they had. Just see how powerful S&P's negative comments were a week ago. Something out of the Bernach's mouth that does not fit the obvious consensus could start a run for the door.
I'm buying VXX Tuesday: it's already crushed. Taking on some UUP as well along with a short in silver. I lived through the commodity bubble of 1970's. This one's playing out in a similar way. If I take a little pain short term, so be it. From these levels, I will be vindicated over the next six months.
Best of luck. If you're already long commodities here, with the VXX this cheap, you'd best be buying some protection before the Bernach opens his gator.
Love all the comments. Love the comment on the VXX. I've been tracking this for a few weeks now using both RSI and a couple combinations of moving average and moving average envelopes. Very interesting when both of those indicators are applied to UUP as well. This certainly is going to be an interesting next couple of weeks in my opinion.
Again, thanks for the posts.
They can't raise rates at all because it would halt home buying and refi-ing which would crush the already desparate housing and mortgage industry. They can't continue to print because they can't afford to destroy the dollar completely (yet). So they will play a game of skip to my lou and let the SP melt up to the 1420 levels and then gradually begin to deflate the equity bubble. I don't believe we get a crash. We get a prolonged deflation of equities and a reflation of the dollar. they really are between a rock and a hard spot, but that is when computer programs come in handy and regulate the system that they have screwed up.
what bernanke and geithner say about they support strong dollar means NOTHING! NOTHING! NOTHING! it is what they gonna say about QE forever, QE lite forever, 0% interest rate, and action policy FED will take to increase/decrease liquidity MATTER! if there is no concrete plan to mop up liquidity and to stop dollar debasement, then alternative is PRINT PRINT PRINT!!!