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This Sounds Familiar
There is a strong trend. Negative divergences in an up trend or positive divergences in a down trend (between price and momentum oscillators that measure price) begin to show up on the weekly charts. Traders position themselves for a trend reversal as the divergences are indicative of slowing momentum. The reversal never comes, and the trend continues in the same direction often times accelerating as traders bail out of losing positions.
Sounds familiar? We have seen this in equities this year as prices bolted higher in mid July, and we have seen this in the Dollar Index as a continuation of the down trend that started in April. This is the "this time is different" scenario.
So what is the big deal? Well our key asset, the Dollar Index, is forming a positive divergence on the weekly charts. See figure 1, a weekly chart of the Dollar Index.
Figure 1. Dollar Index/ weekly
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Positive divergence bars between a momentum oscillator that measures prices and price itself are highlighted by the pink prices within the gray oval. As can be seen, closes above these price bars led to an intermediate trend reversal or a close below the lows of these positive divergence bars resulted in an acceleration of the trend lower.
So with the positive divergence in place on the weekly, a close above the highs (77.33) of this price bar would result in the down trend being stymied. A close below the lows (76.49) of this positive divergence bar would likely result in an acceleration of the downtrend as traders cover their losing positions. (Anecdotally, much of my email recently has suggested that many traders are positioned for a reversal in the Dollar Index, so we shall see if "this time is different".) In any case, this acceleration of prices could come to fruition as there is very little support between current prices and the lows seen in April, 2008.
Lastly, a weekly close above the pivot low point at 79.46 would likely result in a new up trend.
And one final note: The Dollar Index -that same key asset to follow - that has been driving returns in both equities and commodities is down today. Surprisingly, equities are down too. Commodities will remain the beneficiary of a falling Dollar. Equities should start to struggle in such an environment as inflationary concerns (real or perceived mount) and the notion that no country has ever devalued its way to prosperity takes hold.
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Exporters love weak currency.
The "earn our way out" time dilating crowd wants a weaker dollar.
And if they can't break deflation trend, then those 26 trillion in bailouts and backstops will have to be paid with dearer dollars.
MUST have weaker currency and inflation, even double digit inflation to even have a chance at growth again.
Prudent will pay AGAIN in bearing up for losses of others' making. Spendthrifts and speculators and gov't sponsered grifters will take all the benefits.
The squeeze is getting terrific.
The anti-dollar trade is hugely overcrowded and as seen in mid-2006 will take all commodities/equities/risk currencies down if it strengthens.
Inflation may support commodities but inflation would also call for aggressive rate rises and see a HUGE dollar rally as the era of loose monetary policy and cheap money comes to an end.
A stronger dollar would also pop the Chinese asset bubbles and destroy exports further.
The US current account deficit has halved this year and if saving continues will halve agin. Its now at 2.9% of GDP, down from 6.6 and the lowest since 2001.
Dollar strength is coming.
I warned of an impending stockmarket crash back in early 2007.
My USD index long term indicator continues to give bullish warnings.
The primary trend remains down so far, is the current bear market rally ending ?
MORE:
http://www.zerohedge.com/forum/market-outlook-0
Geopolitical tensions will favor the dollars rise. Go long physical and gold on the dollars strength- it won't last.
Tell me who is strong enough to jerk the $$ up or down? Despite economic conditions this $$ is still levitating. The powers that be cannot be too arbitrary here. It is too dangerous. IF the $$ tanks, there is pandemonium. Serious heads will roll.
The last two weeks look like indecision about direction. Dollar is still trending down per the weekly TLB. It's current range is 78.31 to 76.45. It needs a close above 78.31 to reverse the trend (but another lower weekly close will change the reversal price to 78.09). It's also trading below the 13, 55, and 233 EMA's.
Chart: http://tinyurl.com/ybynyj8
AUD rallies on false hopes of recovery, in reality small and mid size OZ companies are closing down in droves.
What drove Q2 and Q3 GDP were massive unprecedented handouts from accumulated surpluses during the commodities boom years from 2003 to 2007, plus a remarkably weak AUD that lasted 3 quarters from Q3 2008 to end of Q1 2009 (AUD fell from record US$0.9 per AUD to below US$0.6, or equivalent to a 30% devaluation). This more than compensated for the fall in volume and prices of commodities (mainly iron and coal) exports to China.
Unfortunately, speculators and stupid central bankers are so proud they are talking about raising rates, all starry-eyed impressed by bogus Chinese PMI and GDP numbers. The most precient chinese economists Andy Xie and Wu Jinglian are predicting a double dip in Chinese GDP in coming quarters, and the Baltic Dry Index is flasing deep red for nearly 6 weeks now.
Thanks to stupid central bankers eager to claim credit for positive GDP growth and talking about raising rates, speculators are out in droves pushing AUD to historical highs last seen in 2008, just when iron and coal prices are down 30% from before the crisis and iron and coal exports are faltering.
Now that the AUD has retraced over 30% (from US$0.65 in March 2009 to nearly US$0.89 today, close to its historical high), you can bet your last dollar OZ land will be the first to see the double dip in Q4 2009. Speculators and OZs think the OZ government and central bankers are savvy, that might well be true, but historically, the role of currency fluctuations has a far greater impact on the fortune of the economy. So while the canadians (who are equally blessed with commodties, but have no public debt and run a fiscal surplus) are busily talking their currency down because they see grey cloulds instead of green shoots, the OZs are shooting themselves in the foot again, just like in the Ashes test series against England.
agreed
My thoughts exactly.
Stupid Aussie even more of a currency that hasn't rolled and should....China Imports down but the world is sure they are going to raise rates and have the best ever economy....COT has such a heavy long interest in the EUR/USD when it rolls it will be wild...just waiting, and waiting and did I say waiting for it.
Speaking of COT, Big4 71% long dollar and rarely
wrong for long...
JubileeProsperity.com
you and me both my friend.....it'll be epic
the first chink in the armour will be when they raise rates and the aussie DOESN"T rally ..... all change please !
Did you really just use the phrase "the first chink in the armour" when discussing the Aussie-China relationship? One can read much into that inadvertent (?) double entendre. Just saying...
I wonder how it will take for the Aussie to roll over once China tackles overcapacity.
http://online.wsj.com/article/BT-CO-20090930-700633.html?mod=rss_Commodi...
Today's Chicago PMI index is another illustration that
the real economy is dead in the water, despite the fed
having debased the US dollar ramping the last six months' global rally. Nice going, Ben, you propped the markets
for nothing and now we've got trillions in debt and a
dollar that's tanked. Now you've got to ramp the dollar
with all you've got just to be able to debase it again
six months from now when you'll need to stimulate the markets again. Good luck with all your endeavors, Ben,
I know Oz is a wonderful place to live.
If Friday's employment report surprises to the upside, the USD will rally. I wouldn't count on the downtrend continuing.
Leo,
lately every bounce up in the USD has been met with selling. The market action does not paint a bullish pattern at all, not even a reversal.
USD can play out in many ways, all which could make sense. FED is interested in weaker dollar, and the carry trade has been good for equities. So dollar weakness may continue knowing Fed's backing of weak currency. However, as that drives commodities higher, then equities will eventually collapse under the increased burdens of commodity costs. Weak dollar helps equities until it doesn't. And, if equities end up falling during either a strong or weak dollar move, it should play nicely toward gold, as a hedge against that uncertainty. Those are my $0.02, and they free. (I'm short equities / long gold).
I am the same, although agree the US$ could rally here for a bit.