"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, June 3, 2011

Gold - 4 Hour chart update

Continuous Commodity Index grinding higher but overall trend lower

Employment Data undercuts US Dollar

This morning's abysmal US payrolls data caps off a 'weak' in which economic data releases confirmed that the US economy is headed for a "double dip". A pitiful 54,000 jobs were supposedly created in the month of May with the unemployment rate moving up to 9.1%.

While we market watchers and traders have come to expect news like this to drive off the risk trades and send safe haven flows into the US Dollar, no such thing happened. I mentioned earlier this week that the Dollar's tepid response to the weak ADP numbers was interesting and beared watching. Looking back that was now a harbinger of things to come.

What has apparently happened is that the US economic data has become so rotten, that traders are not moving money into the US Dollar even on news that otherwise would have driven safe haven flows in its direction. The reason is simple - market players are now convinced that the string of consecutive poor news is leaving the hawks at the Fed with no arguments for their case and has brought the doves there into the ascendancy. In other words, interest rates in the US are going to be forced to stay at ultra low levels for a long time to come and while QE2 is coming to an end this month, further monetary accomodation is coming forthwith. At least that is what the market is attempting to signal to the Fed as to its wishes.

The news initially caused a sell off in stocks taking the S&P futures below important chart support near the 1300 level. It has since recovered and moved above it as I write this but as to how it is going to fare the rest of the day is unclear. A close below this level and the stock market chart gets even uglier. A stock market that enters a bearish downtrend is going to be at the forefront of the minds of the FOMC as they consider their next move on the monetary front.

BAck to the Dollar however. It is now trading well below the 50 day moving average and has fallen back below all of the major shorter term moving averages as well. The 10 dma has made a bearish downside crossover of the 20 dma and both look to be getting ready for a bearish downside crossover of the 50 dma. In short, the technicals have completely soured for the greenback and it is once again flirting with the 74 level on its daily chart. A breach of this level that sees the Dollar close underneath it and it is going back down to 73, a level which is extremely, and I do mean, 'extremely' critical from a technical support level.

Meanwhile the combined weakness in the Dollar along with true safe haven flows into gold, is pushing the metal back up and away from its chart support near $1530. If it can claw back towards $1550 and push through that level, it is going to make a run towards $1575 very quickly. The key will be the $1550 level.