"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

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Tuesday, July 10, 2012

US Dollar Looks Strong

The rally in the US Dollar continues not out of any particular set of strong fundamentals in the US but rather out of a general aversion to the Euro and by consequence, to the European currencies.

While the Fed seems to be basically standing pat for the immediate moment, the Bank of England has announced another round of its bond buying program while the ECB has lowered rates. Given that backdrop and the lingering fears and uncertainty over the bailout mechanism put in place by the European finance ministers and political leaders, traders continue to bid up the Dollar. This buying is a reflection of the unease among traders over current market conditions. People are confused to say the least and when they are, moves tend to be exaggerated as liquidity is falling off with some either lightening up or simply moving to the sidelines altogether.

That being said, this buying has pushed the Dollar right smack dab to an important technical resistance level on its longer term chart. If you note, it has already bested both the 50% and the 61.8% Fibonacci retracement levels of the entire decline from back in 2010 to 2011. It remains above this latter level this week. If it can push through that overhead resistance line, there does not appear to be a whole lot between it and the 2010 peak. That means it would have the potential to make a run towards the 89 level.

While that seems difficult to envision for some Dollar bears, given the pathetic condition of the US economy and it fiscal woes, one has to keep in mind that compared to the Euro, it looks good! (that is not saying much but the USDX is weighted against the "value" of other major currencies). We will have to wait and see should the Dollar indeed manage to move higher as we could normally expect to see pressure across the commodity sector in general.

I would imagine that conditions in the Eurozone would have to begin deteriorating more rapidly to see the Dollar accomplish this feat. If that were the case, traders would most assuredly work those "slowing global growth" trades once again. That would bring some further pressure on the silver market. It would also however ramp up pressure on the US Fed to move forward with their next round of bond buying, a factor which, if traders are convinced is coming, would see the grey metal shrug off that selling pressure and move higher in anticipation of the next wave of liquidation injections.


  1. the grains had been forcing the CCI commodity index up lately with classic hft/black box hedge/sovereign wealth fund style buying(similar to what took gold up in it''s 11th straight year), overcoming the USD for a time... we'll see if today's drop in crude oil can start a CCI correction, helped by a sell the news on usda grain report in the morning...

    noticing the same blogs whining without ceasing about gold/silver manipulation all seem to want a collapse in global monetary system as well..hey fat chance trying to buy anything with your gold bars if money does become worthless

  2. corn today: Funds sold an estimated 11,000 contracts of length which would have to be considered a rather mild amount considering they have put on nearly 150,000 contracts since mid-June when the weather rally started to get into full swing.

  3. 77;

    If tomorrow's USDA report does not contain any surprises, we are going to be back to watching the weather models. At some point corn is going to price itself out of demand but I am not sure what level might be just yet.

    Looks for huge plantings in the Southern Hemisphere in a few months as I believe ever available square foot of arable farm land down there is going to be planted.

    The focus has been on the supply side of the corn market and rightfully so but it is going to shift to the demand side soon.


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