King Dollar is back! If I am reading this chart correctly, it looks as if the Dollar is on track to manage SIX CONSECUTIVE HIGHER WEEKLY CLOSES. That is the first time that will have happened in more than 4 years!
The greenback has finally managed to push past a key technical chart resistance level near 85 basis the USDX.
While the trading week is not yet ended, if the Dollar can stay above this level noted on the chart to finish it out, I frankly do not see much in the way of further overhead resistance until one nears 86.50 - 87.00. If it does indeed go there, I do not think gold will be able to stay above $1200 as there should be a continuation of the general macro trade jettisoning most commodities should that occur.
The flip side to this is the abysmal showing of the Euro which continues to plummet. Simply put, the Eurozone economic growth has stalled out and its central bank is no where near talking about raising interest rates. That leaves the Dollar with its distinct interest rate advantage, the key factor that has been driving the currency markets for the last 4-5 months.
In looking at its chart, there is a bit of support just below the session low of today. Further down is a zone near 1.2665 - 1.2650. I do not see much in the way of support of any significance if the latter level were to give way. In other words, it is entirely possible that the Euro may see the 1.2000 level. You might recall that during the European sovereign debt crisis, the Euro was plumbing those depths. For TA purposes, that is a double bottom on the intermediate chart. Heaven help that currency if it were to lose that level for any reason!
With the Dollar as strong as it is, one can expect to see gold moving lower, and that is precisely what it is doing.
Here is the recent chart:
Price is attempting to stabilize near current levels; however, the key will be this week's low near the $1208 level. If the bulls can prevent the bears from taking price below that level, they have a change at stemming the bleeding and moving the market into a sideways pattern, halting the downtrend that has been in place. If not ( and especially if the Dollar continues to move higher), $1200 is going to be tested and will probably not hold. We'll just have to wait and see.
Shifting to the grains for a bit - that Corn/Wheat Spread, the one that has been keeping the big specs on the long ( and wrong) side of the corn market, once again failed near the 140 level. That just seems a bridge too far at this point. Corn managed to eke out some gains today as the forecast maps showed a rather large rain event scheduled to hit the corn belt near midweek of next week. That immediately set the bulls yapping about damaged crops, disease, delays in the harvest and the beginning of the Apocalypse. I read where one bullish analyst swore that he saw a Black Horse Rider going through the corn fields of Illinois with a big scale in his hands crying: " a quart of wheat for a denarius, and three quarts of barley for a denarius, and do not harm the oil and the wine".
We'll keep an eye on things but for now it looks to me more like a case where some shorts decided to book some profits on the forecasted rains to wait for a bounce higher to sell it again.
Also, there has been some chatter about increased export demand for US wheat, now that prices have fallen to near 5 year lows. I am interested in seeing if such develops for any reason. There are a significant amount of hedge funds and other large specs who are Long corn, and Short wheat, and if this spread reverses violently, we are going to see some interesting price action in the corn in particular.
I think the strong dollar is going to put a cap on any potential wheat rallies but that assumes that other key growing areas around the globe remain free of weather-related threats. Currently there is a large glut of wheat around but the one thing about that market is that other growing regions have to be monitored.
Wheat started the day on a strong note but lost about half its gains going in to the close. Still, it managed to maintain its footing and for a market that has been beaten with an ugly stick like it has, maybe there is something to it. Again, it is too soon to tell.
I am beginning to wonder if the cattle market is ever going to break down. It bends but does not break. Given the strength in the Dollar and the general trend towards selling commodities, and given especially the continued high price of beef which is even more expensive on the global export markets due to the strong dollar, I wonder how much longer the longs are going to keep coming in and supporting this market. Cattle are perhaps one of the few commodity markets that the longs have been able to make some money in and they seem determined to not throw in the towel, yet.
At this point I am still standing by my view that beef prices are going to be coming down by the 4th quarter and certainly by Q1 2015, but the bulls are flexing some very impressive muscles at the moment. Feeders especially are continuing to defy gravity. I frankly do not know how in the world those guys are going to be able to make the least bit of money buying feeders at these prices to sell next year.
That's it for now - the S&P 500 is on a tear once again and is back above 1990 as I type these comments. The same guys who are apparently buying equities must be the ones buying in the cattle markets because the price action is quite similar - the market will bend but then snap right back.
"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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