"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 Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



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.

26 comments:

  1. Dan,
    Thanks for the update. We have been waiting a long time for the Euro to start breaking down and it's finally here. If silver can lose another 5% before the end of the month I can say winner winner chicken dinner!

    ReplyDelete
    Replies
    1. John;

      Hope your trading is going well buddy.

      Delete
  2. Hey Dan,

    The USD will buckle some knees in the years ahead. The promoters may get it right, but timing will kill them.

    Eric

    ReplyDelete
    Replies
    1. Eric De Groot;

      boy howdy isn't that the truth my friend. If we could predict the future will glaring accuracy we would all be doing something else besides sitting here trying to make a living in these markets.

      One thing that WE ALL KNOW for a fact - if and when the Dollar starts to drop lower and if and when gold starts to rally, these same clowns will tell us all how "right" they were.

      It is pathetic.

      Delete
  3. Dan. The Russian stock ETF's are up a lot over the last several weeks. Reportedly because of easing tensions with Ukraine. Some are higher than before the crisis. Last week was a good week for them. RSX, DEM, EEM, RBL, ERUS, VWO. Yet the PM's and miners have not fallen down the stairs to lower levels. Would you say that tension is no longer a supporting factor for PM's and miners and that we might expect dollar and euro movements to be the dominant factor to keep a range between say 200 and 220 HUI for the near term. With of course a return of tension to challenge the resistance you outline, or a dollar rally to challenge support just above 200?

    ReplyDelete
    Replies
    1. Glen;

      We are entering the summer doldrums when it comes to gold and volumes are dropping off considerably. Markets that experience thinner trading conditions can do all manner of things since it does not take much of an order size to move them around.

      In regards to the Ukraine tensions thing - I would say that gold dropping from near $1320 to below $1280 was the result of a loss of much of that tension. Once that level broke down, we then had technically based selling occurring. When the bottom near $1240 held, shorts started to cover and that is what we have taking place now.

      Gold could rebound back up towards $1280 without threatening the negative chart pattern but if it were to clear that, we would need to respect the move.

      I personally would like to see this $1240 region tested once again.

      ON the HUI, value based buying is supporting them as some feel that they do not have much more downside seeing that the sector has been beaten with an enormous ugly stick. These miners need the momentum crowd to come in to generate any real fireworks. It will take something on the fundamental front to get those guys in however. They are all mostly playing in the broader markets.

      By the way, you and Jasper need to call a truce.

      Yes, I have used the expression that "opinions are like armpits" but not to attack anyone specifically. Let's just say that I don't think I would like it if someone did that to me specifically.

      Thanks!

      Dan

      Delete
    2. Ill call it a truce. These 25 year old kids are just irresistable.

      Im selling an apartment in moskou - seriously, check the ruble pairs.

      Delete
    3. Jasper;

      Thanks buddy.... by the way, the way things are going here maybe we should move there!

      Delete
  4. Have you seen a ruble euro or ruble dollar chart lately? Ruble has appreciated and is going to appreciate a great deal more in value in a short period of time imo.

    I really dont see a relation with PM and miners. They are drifting sideways untill the final washout happens meanwhile nothing matters much really.

    JMO do your own due diligence.

    ReplyDelete
    Replies
    1. They are most certainly not drifting sideways today or the past week or so. I don't care about the ruble. Those ETF prices in DOLLARS is what I'm talking about. Dan has been saying for some time the only thing holding up Gold is the heat in Ukraine. Opinions are like armpits. I was just wondering about Dan's since it's his blog.

      Delete
    2. If you care about the etf price in dollar you ought to understand the russian etfs hold ruble denominated issues.

      I take it you didnt check the ruble pair charts i mentioned.

      "Opinions are like armpits"

      Where did you become that obnoxious?

      Delete
    3. A story on yahoo finance this morning mentioned the perception by the investment community that Ukraine and Russian tensions had eased and the ETF's in dollars were therefore bid up.
      Dan has used the comment about opinions like armpits, right here.
      Why don't you just take your hands off the keyboard now Mr. Smarty pants and go back to playing pocket pool.

      Delete
    4. Still havent checked the currency pairs, have you?

      Delete
    5. Truce. Peace, love, happiness. Take care sir.

      Delete
  5. Kid Dynamite has a great new post up, continuing his lampoon of the gold manipulation meme.

    http://kiddynamitesworld.com/gold-manipulation-continues-unabated/

    ReplyDelete
    Replies
    1. Heelarious! All those $5 pikes are clearly manipulation!


      Where's his article on the 'out of blue, no-news, no sentiment -change' $20 upward spikes? There's a difference in my mind, with a spike that is then confirmed by the market, and one that is not. Let's see one pop of close to the magnitude, of the same 'price is irrelevant, dump it (or naked short it) all at once' shots to the downside. I'll check back later, for all I know there's a slew of them. But we'll settle for one.

      Delete
    2. Stairs up, elevator down...it is a very common phrase in all markets.

      Delete
  6. Well, guess what?

    Stocks sell off, and commodities are immediately hammered, combined with an instantaneous bid into bonds.

    Ergo, the consumer gets another break, in the form of lower input prices and cheap money forever.

    Eventually, institutions will start snapping up consumer stocks again, as they get a hall pass each and every time there is an economic hiccup.

    Want proof? Just look at Facebook and Monster Energy today.

    And don't even get me started on Molson or Phillip Morris, those beer and tobacco stocks are going totally parabolic.

    ReplyDelete
  7. Anyone investing in natural gas? Looks like mild Spring temperatures did cause the price to dip. A scorcher summer may give it a boost back to $6.

    Plus it looks like energy stocks have been top performers over the last year.

    ReplyDelete
  8. Prophet

    After being dead for years, ECA looks like its been extra strong lately.

    ReplyDelete
  9. Hey Dan,

    Where's a good, free source for tracking the TIPs spread chart that you posted a while back?

    Thanks.

    JL

    ReplyDelete
    Replies
    1. Jesse L;

      I pull the data from the St. Louis Fed website where they have a database for the Treasury yields. I then update those into my spreadsheets and create the chart from that.

      Let me know if you have any trouble finding the site buddy.

      Dan

      Delete
  10. Surprising bounce in Gold and Silver in view of this strength in the Dollar.
    ^Hui strong today with recovery ongoing recovery in mining stocks including: IAG, SA, KGC, HL, FSM.

    One has to give: will it be the $ or Gold ? or does it which is conventional wisdom?

    ReplyDelete
  11. Wolf, it will be the gold caving in, but take that with a grain of salt, as I was real wrong timing wise in spreading gold vs. platinum. On a different subject, over at Mark's favorite site KWN, we once again have Stephen Leeb caught out on another lie, as he notes that America has no rare earths. In fact, the U.S. ranked #2 in the world in production in 2013. Be very careful with these guys that perpetually bad mouthe the $ and have the world running out of oil and so on and so on and so on.

    ReplyDelete
    Replies
    1. I am waiting for the one that says the world is running out of oxygen.

      Delete

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