"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, June 10, 2014

US Dollar takes out Chart Resistance

It appears as if the weakness in the Euro finally enabled the Dollar to take out overhead chart resistance. Last week, when the ECB announced its new monetary stimulus measures, the Dollar shot sharply higher as the Euro initially plummeted lower but neither currency stayed with the first move as they reversed course when traders booked gains on bets placed ahead of the action by the ECB.

Now that the shorter-term technical action has given way to the larger trend, the Dollar has scooted higher as the Euro inches down towards important chart support near 1.35.

Take a look at the following chart and you can see the Thursday knee-jerk spike higher in the Dollar on the heels of the ECB announcement followed by a lower close but that has been erased as the new week commences. The greenback has pushed past the first level of chart resistance near the 80.70-80.80 level and so far is holding onto its gains. A good close here and the currency could be setting up for a test of major overhead resistance near 81.50. Closing in New York above 81.00 would probably send it on its way for that test.

The ADX, shown below the chart, indicates the presence of a strong uptrending move. Bulls are currently in control of this market. From a fundamental standpoint it is not hard to understand the Dollar's strength. Out of the Yen and the Euro, interest rates in the US are better with market players currently of the opinion that is any of these three regions are going to experience higher rates at some point, it will be the US before the other two.

Simply put, it is no secret that the ECB and the BOJ both do not WANT stronger currencies. The Abe government in Japan has essentially been exporting deflationary pressures by its policy designed to weaken the Yen there and generate inflation. The ECB responded to that by doing their version of monetary stimulus as they do try to whip the deflation boogey-man. The Dollar has been benefitting from both policies with the Fed attempting to wind down its QE program.

I am struck by the fact, that in spite of one prognostication after another, in spite of one "secret letter from a banking contact" after another, in spite of one "Belgium buying of US Treasuries is the only thing keeping Treasuries supported", the US Dollar keeps moving higher.

The simple truth is that it comes down to interest rate expectations - remember that and you can ignore all the "1001 reasons for the Dollar to crash" chatter. One can easily cite various reasons for the Dollar to move lower but those who constantly assure us that the Dollar is doomed, someone neglect to mention the factors that also are weighing on its competitors.

If/When the Dollar chart breaks down and it enters a trending move lower, then we can pay attention to some fundamental reasons behind the move down but for now, the trend in the Greenback is up.

Here is the Euro chart showing its technical action.

The double top on the chart has been confirmed (remember - this was caused by Draghi talking it down) with the late May close below 1.37. Bulls tried gunning it back up to that level but failed to reach it last Thursday/Friday with the result that it is now moving lower again closing in on key chart support.

The ADX is rising with the -DMI rising indicating that the bears currently have control of the market. A downside breach of this support zone should send the currency down to 1.340 with potential for a move to 1.330.

While gold is currently experiencing a bit of a pop here and is flirting with initial resistance centered near the $1260 level, if the Euro loses chart support and the Dollar takes out its next resistance level, I believe the metal is going to be hard-pressed to make much upward progress.

Corn bulls tried to take the grain higher playing up the "oversold" chatter but yesterday's crop condition report seemed to take the wind of their sails. It set a near 4-month low in today's session as growing conditions continue to look ideal at this time. Ditto for SRW wheat which set a near 10 week low today. Soybeans however remain in their own little world with traders bull-spreading July/Nov ahead of tomorrow's USDA  Supply-Demand report which they expect will show another reduction in old crop carryover. The bean market has one of the most unusual set of fundamentals that I can ever recall seeing. It would not surprise me to see USDA tighten those ending stocks further but the question I have is just how many beans we are now importing into the country as a result of these sky high prices. One thing I know for certain - the spreaders are knocking these things all over the place almost daily.

These lower corn prices have sent the feeder cattle market soaring to all time highs with no sign of a top. The livestock reporters I have given some comments to for their reports say that players are all astonished at the level these things have soared to. It is amazing what back to back droughts ( 2011 - 2012) have done to the supply of these feeders.

Copper seems to have found its footing above the $3.00 level for now as traders seem to have lost some of the nervousness over the situation in China for now. The red metal looks like it is treading water for now as players wait for further news along that front before reacting too aggressively. Silver seems to have found some support after falling below $19 last week. Sellers seem to be coming in just shy of $19.25.

Crude oil ( WTI ) has once again been stopped dead in its tracks by that stubborn $105 level. If prices do manage to close through this level, it should make a run at $108. Downside support remains $102.00 - $101.60.

The HUI (the shares that comprise it) should run into some resistance beginning near the 216 level and extending to 220.

Volume in gold remains very subdued.

The gold ETF, GLD, has not issued any updates to its reported holdings recently. The recent build has been constructive.

The VIX, or Volatility Index, has not been this low since 2007! Complacency is the theme of the Day.

Speaking of volatility indices, take a look at the Gold Volatility Index. If gold is worried about something, it sure is not being reflected here! The index is mired near multi-year lows.