Trader Dan's Market Views: 05/09/13

"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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Thursday, May 9, 2013

US Dollar Surge through 100 Yen Derails Gold

This afternoon, the long awaited movement by the US Dollar through PAR with the Japanese Yen finally occurred. As it did, the entire Forex machine was thrown into convulsions with the US Dollar moving sharply higher against most of the majors. Thus far it has gained almost 2% against the Yen, 1% against the Euro; 1.4% against the Swissie, and nearly .85% against the Aussie. The British Pound and Canadian Dollar are also both moving lower against the Greenback although not to the same extent being witnessed in the other majors.

Gold was weaker throughout most of the session failing to extend on yesterday's late session gains but when the Dollar broke through par against the Yen, sellers came out of everywhere to sit on gold.

Silver and copper both moved lower as well with silver once again failing at $24.

Moving over to the gold chart - I want to continue to emphasize the falling volume in this chart. Speculative fever simply does not exist right now judging by the lackluster volume. Rallies are not generation any enthusiasm which is what one wants to see if the momentum is shifting in favor of the bulls.

Chart resistance beginning near $1470 and extending towards $1485 is confirmed by today's action. Support down near $1440 might be tested overnight depending on the attitude of Asian buyers towards the metal. If they believe that additional downside is possible, they will pull back on their bids and wait for prices to drop lower before swooping in to buy. Remember, physical market demand is what is keeping the gold market supported; if that falters for any reason, speculators will be eager to sell it especially with stocks moving higher. Today, the Dow pushed through 15,100 for a while before a bout of profit taking set in. Specs love equities right now (except for gold and silver miners it seems) and continue to chase prices higher there while jettisoning gold.

I am going to be watching the entirety of the commodity complex quite closely the next few days since the Dollar looks like it wants to now move higher across the board. If so that will more than likely continue to feed into the current spec trade of dumping commodities in favor of equities. With the Aussie weakening further today and having fallen down through its chart support level near 101, commodities could be coming in for a rough ride once again. We are going to want to see how it closes out the week tomorrow.

Were it not for gains in the Grains and in Coffee and Unleaded Gasoline, the commodity complex would have been lower based on the GSCI.

Time precludes me from putting up a chart of the US Dollar right now but it has a chance of testing 83 tomorrow. If it can put in a solid gain above that level, odds favor it making a run to 84. We need to keep in mind that while the link between the US Dollar and gold has weakened somewhat in recent times, there still exists a connection that cannot or should not be ignored.