US Dollar on the Receiving End of Safe Haven Flows

As much as it pains me to write the words, US Dollar and Safe Haven, in the same sentence, the rush into the Dollar is evident as the fallout from the US election, combined with fresh fears surrounding Greece and other parts of the EuroZone continues unabated at this point.

This is perhaps one of the main reasons that the big shorts over at the Comex have been able to thus far stymie the yellow metal near the $1740 level.

Note on the chart below that the US Dollar is working steadily higher after having managed a strong push through a heavy resistance level near the 80.50 region. It has now pushed to the 100 day moving average, a level at which we would expect it to encounter some profit taking by speculative longs in the market. However, the above mentioned combination seems to be preventing any serious long liquidation at the moment as traders are more interested in owning the Dollar, warts and all, than they are the Euro at the moment.

Note also that the 20 day moving average has now crossed firmly above the 50 day moving average which is also flattening out and now looks as if it too wants to turn higher. There is an additional bit of chart resistance coming in near the 81.75 level that might stem its advance should the bulls keep pushing it higher.

The point I wish to make here is that the broader US equity market is continuing to head lower as the election results have guaranteed a decidedly unfriendly business climate for the foreseeable future. I am writing this during the Asian session but the S&P 500 is trading lower and once again looks as if it wants to test that critical 50% Fibonacci retracement level of the rally beginning earlier this past summer. If the bulls cannot force a quick rebound as they did last Thursday, the index will more than likely drop to at least the 1343 level.

With some of the risk trades being removed, the US bond market is also moving higher shoving interest rates lower in the process. The long bond is back up in nosebleed territory as it is once again testing the all time highs. Clearly, the SLOWING GLOBAL GROWTH THEME is back into play, again, for the umpteenth time. It seems as if we are never to be rid of this damned incessant tug of war between the deflationists and the inflationists. Now that the US public has voted for 4 more years of the same crap, it is difficult to see any of this changing meaning we are going to have another 4 years of incessant volatility and more market madness as the Fed fights the forces of deflation.

Look at what has happened to the yield on the Ten Year Treasury Note once again. If you want to know which side is prevailing in this battle between the deflationists and the inflationists, just keep an eye on this chart as it will tell you all that you need to know.

One last chart, it is a gold to S&P 500 ratio chart. It is evident which of the two has been the better long term investment. A rising line means that gold is outperforming the broader US stock market. The S&P 500 has outperformed gold during some brief intervals through a good portion of 2009 and especially in the second half of last year but since the middle of this year, gold has been holding up much better than the stock market.