"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


Friday, December 30, 2011

US Dollar looks to squeak out a Winning Year

The Dollar is being sold down today in the year's last trading session as bulls book profits and window dress their accounts after the nice run higher over the last two months in the greenback.

This is allowing the commodity complex in general to rally and is benefitting both gold and silver.

Reading too much into one day's trading action at this time of the year is generally not wise. Volume is simply too low to validate any moves and with liquidity quite low, it does not take much in the way of order size to move these markets around. Also, some of the pit locals particularly are fond of separating traders from their money in this kind of holiday trade.

That being said, the Dollar has managed to finish the year of 2011 on a positive note, even if barely. It is hardly a ringing endorsement of the greenback however as it was more a "get the hell out of the Euro" trade than anything. Risk aversion and a flight to cash were the main culprits behind the Dollar's rise, especially over the last few months. Fundamentals cannot be said to be strong for the Dollar, not when we are running over $15 trillion in federal debt and are at 100% on the Debt to GDP ratio. If that were not bad enough, the president just asked for ANOTHER $1.2 TRILLION in additional spending limits.

Getting a read on things as we head into the New Year is a bit tricky since the same problems that have plagued Europe still remain and China, while still growing, is slowing down a bit. The US economy is working along a bottom and while recent economic news has shown some signs of stability and extremely modest growth, the idea that the economy is going to expand at a rate fast enough to do much if anything to cure the ailing jobs picture or even put a dent in the federal debt is wild and wishful fantasy. The US economy has bottomed out but that is a far cry from signaling halycon days are ahead.

It does help to put things in perspective however and that is what the long term monthly charts are good for. This chart is hardly a vote of confidence in the US Dollar which has declined 30% over the last ten years as of the end of this year. While recent Dollar bulls may be congratulating themselves for making a wee bit of money this year, try telling one's kids and grandkids that their future looks rosy based on this chart.

As we start the New Year next week, the Dollar has a chance to extend the rally of the last two months if it can better the initial resistance level near 81.40. That would set up a push to 83, which if the Dollar can take this out, would pave the way an eventual run towards 89 - 90. Much depends on the state of mind of traders regarding risk and whether they are willing to commit capital that is sitting on the sidelines or to continue keeping their powder dry and hoping for signs of improvement in the global economy as a whole.


  1. Thank you Dan for the information, your blog, and your insight. This dollar chart definitely shows me where we are and if the Euro starts to disintegrate where the likely top is. At that "topping point for the dollar " around 83, and potentially squeezing oil and gold at dollar index level 90, will be the time to push in all the "chips" and pray to the all mighty the government does not start trying to confiscate. Hardly an option at this point in history, but with this administration, who the heck knows. This seems to be the most corrupt government ever, and with the "Banksters" joining in, it makes this market seem like a FANTASY. Thanks and hoping you had a great Christmas and a great New Year. You are a true gentleman giving of your time and efforts to help us understand the commodity world from both a technical and fundamental perspective.

  2. Global equity markets like a weak dollar. It should be at 90 ALREADY, but to keep the party going, dollar needs to stay low. As such, if the EU can do ANYTHING to get those friggin spreads in on the peripheral countries 10 year, we'll be in great shape heading into 2012. Spain and Portugal came in a little bit today, Italy up a little bit, slightly over 7%.

    I suspect some behind the scenes arm twisting will get things done , at least initially. Seriously, how embarrassed Sarkozy, Draghi and the EU must be.

    Gold/Silver/Platinum/Palladium, all UP today - a day when the Euro sold off 60 pips from the top, when crude was down, and the general markets down. I'm cautiously optimistic that a reversal is in - at least for the next 2 or 3 trading days.


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