"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

Trader Dan's free work will soon be available at www.traderdan.biz

Tuesday, April 2, 2013

U S Dollar Remaining Firm

The strength in the US Dollar had recently been coming mainly at the expense of the Japanese Yen. That is abating somewhat as the Yen is seeing some short covering and fresh buying as traders pare back expectations for AGGRESSIVE Bank of Japan action in the immediate future. It is clear that the Japanese monetary authorities want a lower yen but apparently the recent pressure from the rest of the G20 has caused them to ease back a bit on browbeating their own currency.

What is helping the Dollar more so recently is the weakness in the Euro which has not been able to recover from the blow it received as a result of the Cyprus debacle. That precedent setting raiding of bank deposits has left its mark, a mark which I believe will not ever completely heal.

Throw in the fact that we have a US equity market which has been goosed into the stratosphere, compliments of Ben Bernanke and the rest of the doves over at the FOMC, and you have the ingredients for further strength in the Dollar as by comparison to the rest of the world, the US economy looks decent.

I find it ironic that in this nation we have reached a point where we now define deviancy downward. The same holds true for our financial and economic standards. This abysmal "growth" we are witnessing in the US economy (again, thanks to QE and nothing else) is now heralded as good. There was a time when growth of this nature would have been mocked.

With a Federal debt expected to reach somewhere in the neighborhood of $20 trillion by 2016, with a massive and increasing unfunded entitlement crisis growing ever larger with the passing of each and every month, and with no real plan by the current administration to even remotely deal with these matters, the Dollar's honeymoon on the Foreign exchange markets will come to an abrupt end at some point. When that point occurs is anyone's guess right now but unless we have to rewrite the economic history books, the Dollar is going to eventually go the way of the British Pound.

If you notice on the chart, the Dollar enjoyed an uptrend that began in July 2011 and lasted through July 2012 at which point it transitioned to more of a broad sideways trend below 84. Dips to the 79 level have attracted consistent buying while sellers appeared at the 83 and higher level. That level closely coincides with the 61.8% Fibonacci retracement level noted.

If the Dollar can clear this level convincingly on a weekly basis, there is some light overhead resistance near 85 - $85.50 but beyond that, there does not look like much in its path for a run toward the 89 level.

I should also note here that this consistent strength in the US Dollar is continuing to set the hedge fund algorithms into selling commodities as a general trading strategy.

This is the reason for the continued weakness in silver, and in gold, I might add, although as I have stated in some private emails, I do not understand the strength in the crude oil market. With building stocks here in the US and with no sign of robust demand that I can see, I am honestly baffled as to why hedge funds want to own crude oil, given the fact that the commodity complex continues to reflect a global economy growing at quite a reduced rate.

See the chart below of the CCI to understand why Silver is getting clocked and making fresh seven month lows. Were it not for strength in crude oil, the CCI would have broken that support line shown on the chart near the 540 level and begun retreating down towards the lower part of the downtrending price channel.


  1. Interesting choice of terms in the context of this article when one considers that "Defining Deviancy Down" which was written by liberal lion Daniel Patrick Moynihan might by current standards and measurements be considered conservative dogma. Coincidence or am I reading too much into it?

  2. Speaking purely as a lay person...I really don't understand how one can say there is no inflation. Yes, I realize energy and food have been stripped out due to volatility but it is also the 2 components that EVERYONE will consume to some degree. I'm in Canada and bought 8 items the other day at the grocery store. Mostly vegetables and some cookies (no meat, cheese or fancy stuff) and I paid over $20!! No it wasn't Whole Foods or the like...

    As far as I'm concerned inflation is all ready here for most of us main street folks.

  3. HUI was ugly today. closing just a hair above critical fib. retrace & hui:gold down to .214 and change. ouch.

  4. From my simplistic viewpoint, I see the hedge fund's desire to own crude oil as a prep for the time when "the Dollar's honeymoon on the Foreign exchange markets will come to an abrupt end".

    They will then be able to use their strength in crude to buy other commodities, gold and silver included.

  5. Dan,

    What would you anticipate the resistance levels in the HUI at this point. Seems 300 for round numbers and 315; approx 50% retracement from 2 yr high?
    Can it really go on much longer?

  6. Anyone who bet with Bernanke and went long retail stocks, shopping center REITs, travel and leisure stocks and and the same time shorted the HUI the last 2 years can now officially retire.

    That trading strategy probably produced the once in a lifetime gains in the shortest period of time.

    Proof positive that the number one trading rule is to never fight the Fed.

    Paul Krugman must be sitting back in his chair and laughing, while the rest of us are going broke.

    1. indeed! that said, one wonders how long you can squeeze blood from those turnips...l live in Mexico--near the Silao, Guanajuato GM plant. It makes makes trucks, escalades, suburbans, etc. I drove by yesterday and every square inch of factory grounds was filled with trucks--perhaps triple what the intended inventory space is (trucks parked on grass, in fields, down hillsides!).

  7. Looks like this is the time when the bears looked around to see who was going to kill them, and saw no one , so even with 17 trillion of debt, and 0% rates, and trillions of printing (counterfeiting) they saw no opposition, and so they struck. And I am not strong enough to counter the attack, but we need to send in the marines and counter attack.

  8. Hi Dan,
    Regarding your curiosity about the strength in oil price in your 28th March article "Gold Flops", I have a theory: I read an article on zerohedge titled "the myth of US energy independence" suggesting that the fracking/shale oil/gas industry needs high oil/gas prices to survive, say USD$160/pb. Maybe this explains the strength in oil. A whole industry will go bust if oil goes lower with CCI.

    zerohedge article: http://www.zerohedge.com/news/2013-04-02/guest-post-myth-us-energy-independence

  9. crude oil entered it's strong seasonal period the last time it touched it's 200-day SMA, and that seasonal strength continues all the way thru april... gold and silver on the other hand have trouble in april, but may is a seasonal up...

    crude oil has the oil producing nations and those nations have sovereign wealth funds, so last week it would have been a fast way to get out of the euro to buy some oil futures contracts..

    gold, as mentioned, probably needs everybody bearish after 12 straight years up to make a good bottom...
    here's a fresh one:

    the Ags had a nice drop and using an old traders axiom that a market has to go touch it's 5-day SMA, look for a bounce in may corn similar to what may wheat is doing!


    1. 77 - The bear articles on gold are interesting (and worthy of reading to test one's hypothesis). First-headlines reflect sentiment, not content, take Bloomberg's headline on crappy employment data--it's '150k jobs added', not 'big miss'. The article states: 1. the chance of crash is under 20% 2. the crash would be due to a. higher dollar (i'll give them that) b. inflection point/economy reaching escape velocity (Wrong! read article reuters/subprime auto loans--taking shotgun as collateral for car / guy w/ 15k annual income constantly buying iPhones & obviously legally (if not morally bankrupt) c. QE ending. So Hogwash.

      On another point, I think part of the problem with us Gold-bulls is that we are disgusted w/ the moral bankruptcy of the economy--from banskters, to public pension feeding parasites, to people with nothing thinking / conned into thinking they deserve iphones (and the latest at that).

  10. The world is FIXED..Stocks at all time highs. Gold getting pounded. Except...watching...Large Italian Banks off 35% in last 3 months. Watch closely as this may be the next problem as capital controls and Government Thievery continues Will Italian Banks break next? mmm?
    ^BKX rolling over as well..BAC down 2% early AM..
    What is next?

  11. SoGen calling for $1375? SoGen Stock down 28% in last 3 months..The Bank stocks have seen direct correlation contrarian diversion since late 2011. Maybe we should all short the Banks in order to get the foot off the miners and gold. It is apparent that the bullion banks are the major sellers..

    1. posting is cathartic on days like today. I could see $1375, heck it's only 175-185 bucks from today. if that happens, it would seem that the commodity fall would presage a HUGE fall in equities--like, uh oh, reflation is not working... SHTF

      looks like HUI is breaking through 67% retrace--on to 75% / 272? looked like intraday HUI:GOLD was .209.

      and finally--sprott physical gold fund traded as low as .05% premium to spot.

    2. First, apologies for so much posting...So the very very scary thing on my mind is...our unelected bankers have pumped trillions into the system, trillions upon trillions...and we are not reflating...commodities down, income down, the only way to get any life into housing is by essentially 0 interest rate mortgages and the only way to sell durable goods is through NINJA / Shotgun collateral loans (which are then securitized & trenched!). If there is something like existential dread, this should be it.

      So while JS may have been wrong to advise holding on to gold shares rather than selling & buying back low, how right that QE to infinity is an inevitability.

  12. I sure hope JS is correct, but the whole market might fall before good gold stocks might sprout.Painful. Holding on here but looks like one heck of alot of mining shares changed hands with very high volume..and got crushed down another 5% today.

    1. Not sure why it is a crime to stop out and buy back lower.

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