"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


Monday, March 21, 2011

Broad Dollar Index continues sinking

The Broad Dollar index is a much wider or "broader" representation of the plight of the US Dollar on the global markets as the basket from which the index is created is more representative of the globe than the smaller basket of currencies that comprise the USDX.

Even at that, it still shows a very similiar pattern to the USDX and is also now technically within striking distance of its 2008 low having broken downside support near 97.

It is highly unlikely that gold will not make a new lifetime high if this support level near 95 fails. I can easily see it above $1500 were this to occur.

I also believe that the US Dollar is at levels that are now necessitating it to be watched very closely by the US monetary authorities. In much the same manner as the Yen went flying to the upside, so too the Dollar could go crashing to the downside if the speculators decide to sit on it in earnest. While the Fed and the US officials WANT a lower Dollar, they do not want a Dollar crash. Sometimes it is easier to talk about such things than to actually accomplish it.

Should the Dollar carry trade increase in intensity, every hedge fund on the planet would be arrayed against the G7. That would be weird to say the least as the G7 monetary officials do not want the Yen any higher yet if they are not careful they may end up pushing the Dollar past the point of no return. What an awful stinking mess!

US Dollar update

As has been the pattern over the last view trading sessions, the US Dollar has become the whipping boy for the global forex trading crowd.

Today is was strength in the Euro which sent it lower. Talk is picking up that the next move in regards to interest rates by the ECB will be to raise them. That contrasts sharply with the situation around the US Dollar where rates will remain low for the immediate future.

Given this fact, it is difficult to make a case for the Dollar right now as it moves ever closer to a long term inflection point on the charts. It is sitting only a mere 40-45 points from this support level with the RSI not yet in oversold territory. That alone is rather foreboding.

Each blip higher in the Dollar has kept the RSI in a defined downtrend as indicated by the inability to break the downtrend line shown on that indicator.
Simply put, there is currently no strength in the Dollar. Keep in mind this is taking place against a backdrop where the Yen is being kept weak. Imagine where the Dollar would be had not the G7 intervention taken place?

I also happen to believe that is one of the reasons that made it easy for the G7 to agree to a round of coordinated intervention. It might have also been to help the Dollar also! Had the Yen not been taken down, the Dollar would have crashed through a major support level.

Still watching Silver Deliveries

There were only 2 deliveries posted against the March Silver contract  today bringing the total deliveries for the month to 980. I should note however this is the first day since the delivery process began that the March Silver contract did not see a reduction in open interest. Interestingly enough, it witnessed an increase of 5 contracts on Friday of last week. Apparently some guys are planning on taking some silver and decided that the market was going to move higher with the return of the risk trades. A total of 898 contracts remain open in the March.

The spread between the March, May and July contracts for all practical purposes is zero with the March and May trading even. I would watch out if March goes to a premium to the May contract as that would portend that there are issues related to the delivery process which are bullish for the market. Such a development would indicate that the longs are getting ready to squeeze the shorts.

This is getting interesting as the battle to contain the metal below $36 is heating up. The shorts had better hope that they can push the market away from $36 convincingly or they are in trouble.

HUI morning update 11:00 AM CDT

The mining shares are moving higher alongside both the broader equity markets this morning and the precious metals. The shares are reacting to what the market perceives as an improvement in the situation regarding the nuclear reactors in Japan.

If enough of the shares can maintain their early gains and do not fade, there is a chance that the HUI could push back into the resistance zone noted on the chart. Clearing this zone would set the index on a path towards 560, which is about midway between the recent peak near 580 and the drop down to 520. That is where the next battle would then be joined.

Failure to clear the resistance zone will see a setback towards 540 initially with additional support below that near 535 followed by 530.

4 Hour Gold Chart

Gold immediately gapped higher on its reopening for trade Sunday evening in Asia (Monday morning there). I am impressed by the fact that the gap was over and through the strong resistance level that had been blocking the market from moving higher last Friday. That level was near $1422 - $1424. Thus far it has not even gone back down to retest the gap breakout. While it is still early in the session, this is significant because it reveals that the buying is of a nature that it is not abating.

Resistance has formed at $1435 however. If gold can punch
through this level as the day wears on, it looks to me like it is going to make a run to the all time high just above $1440.

Volume is decent but I would like to see it a bit stronger to be honest. It suggest a bit of hesitancy to take it through $1435 at this stage.

Support now moves to the level just below the gap from last evening. That comes in near $1420 on the downside. Bulls will not want to see it fail there should it attempt a setback and retest of the gap.

Technical indicators are positive at this time. They are also reflecting the resistance at $1435 however.

4 Hour Silver Chart