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The Dollar has Game

Marc To Market's picture




 

It appeared the US dollar was bottoming in the first half of October.  We had noted the possibility of head and shoulders reversal patterns in sterling and the Swiss franc.   These proved for naught, and yet, it still appears the dollar is carving out a bottom. The technical tone for the greenback has improved in recent days.  

 

There has also been a  shift in the fundamental focus toward somewhat better news from the US and somewhat poorer news from Europe. There is mounting speculation that the European Central Bank will have to have some sort of policy response to the continued decline in private lending, weak growth in money supply, and near record low inflation. 

 

The Dollar Index, which despite the fact that it is not reflective of US trade flows (two of the US 4 largest trading partners, China and Mexico, are not included, and it is heavily weighted toward the euro and currencies that move in the euro's orbit), many participants see it a rough-and-ready proxy for the US dollar in general.  The key technical development is that it finished last week above the downtrend line drawn off this year's highs in early July and the bounce in early September.   

 

If that down move is being retraced, the next target for the Dollar Index is the 81.20 area and then the 81.75-90 area, which corresponds to a 61.8% retracement and the 200-day moving average.   We note that the RSI and MACDs suggest additional gains and the 5-day moving average has crossed above the 20-day average.  A move now much below 80.00 would cast doubt on this constructive outlook.  

 

For its part, the euro has not violated a similar trend line, drawn off the early July and Sept lows. On Monday it comes in near $1.3425.  That area also corresponds to a retracement objective.  By the end of the week it is closer to $1.3460.  The 5-day average has not cross below the 20-day average, but it most likely will on Monday.  The RSI and MACDs are moving lower. Assuming the trend line is convincingly violated, the next target would be in the $1.3300-35 area, which represents the next retracement objective and the 100-day moving average.  The 200-day moving average comes in closer to $1.3270.  Given the magnitude of the decline in recent days, it probably requires a move back above the $1.3600-50 area to negate this bearish technical view. 

 

The dollar has also not violated its similar downtrend against the Swiss franc.  That trend line comes in near CHF0.9180 at the start of the new week, which corresponds to last month's high, and finishes the week near CHF0.9150. The 5- and 20-day moving averages have not crossed, but they are poised to on Monday.   Once the trend line goes, the immediate objective is near CHF0.9220.  It will ultimately take a break of the CHF0.9420-50 area to raise confidence that a low of some import is in place.  

 

The dollar posted an outside up-day against the yen and the premium the US pays over Japan (on 10-year government paper) widened back above 200 bp for the first time since mid-October.   The technical tone is constructive, but within the context of the broad trading range conditions that have prevailed for five months now.   The dollar has been making lower highs and higher lows against the yen since the middle of Q2.  Last month's high was near JPY99.00 and this represents the next target.  However, even a move a bit higher, even a little of JPY100, wouldn't violate 5-month only trading range.  A move above September high near JPY100.60, though would suggest something more important is taking place technically.   The weekly technical readings warn of the upside risks to the dollar against the yen.  

 

Sterling appears to have carved out a double top (reversal pattern) in October, with gains in early and late in the month, stalling out near $1.6260.  It depends on how one draws the neck line, but it can be found in the $1.5890-$1.5915 area.  The pre-weekend low was near $1.5910.   A convincing break of the neck line, perhaps encouraged by accumulating evidence that the data is no longer surprising the market on the upside, would suggest potential toward the mid-$1.5500 area, which also roughly corresponds to a 50% retracement of the rally from the July lows near $1.4800. The 5-day moving average crossed below the 20-day before the weekend and the technical indicators are weak.   Resistance now is pegged in the $1.6040-70 area. 

 

The Australian dollar posted a key downside reversal on October 23, after poking through the 50% retracement of this year's decline, and has not looked back since. The 5- and 20-day moving averages crossed in the second half of last week.  MACDs are have turned lower, but the RSI is not generating a strong signal.  A break of the $0.9430 area would target the $0.9325 area, though the real technical test may not come until closer to $0.9225.  If this correction in the Aussie is indeed over, the $0.9480-$0.9520 area should hold back stronger gains.  

 

The Canadian dollar is the only major currency to have gained against the US dollar last week (~0.25%).   Yet the Canadian dollar is not very inspiring.  It has been in a broad range for several months.  The US dollar has found demand near CAD1.02 and supply near CAD1.06.  The technical indicators are not generating strong signals.  Look for narrow CAD1.0350-CAD1.0450 range to dominate until toward the end of the week.  Both countries report Oct employment data on Nov 8.  

 

The US dollar is likely to push higher against the Mexican peso.  The 5- and 20-day moving averages are set to cross on Monday and, while the RSI is neutral, the MACDs are turning higher. A downtrend line drawn off the early Sept and early Oct highs comes in near MXN13.20 and this is a reasonable near-term objective.   If this near-term view is valid, the greenback should spend little if any time below MXN12.96.

 

 

Observations from the speculative positioning in the CME currency futures:

 

1.  There were mostly minor position adjustments in the most recent reporting week that ended October 29.   Of the 14 gross positions we track, 12 changed by less than 6k contracts, and of those, a third were less than 1k contracts.  Two gross positions were adjusted by more than 10k contracts:  long euros were added to while long yen positions were cut.  

 

2.  The gross long euro position came with spitting distance of the record high set in April 2007. Many observers focus on the net position, which will fail to reveal how large of a speculative long position has been accumulated.  The cut in the gross long yen position, almost in half from the previous week, is the smallest since March 2012.  

 

3.  In the week ending Oct 29, the gross long currency positions generally grew, with the yen and sterling being the exceptions.  There was a less of a pattern among the currency shorts, except to note the position adjustments were minor.  

 

4.  The net long sterling and Swiss franc positions are the largest since the start of the year, but were little changed from the previous period.  The net short Australian dollar position is the smallest since May.  

 

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Sun, 11/03/2013 - 13:58 | 4117429 orangegeek
orangegeek's picture

While the US dollar rises, the tell is the Euro starting to tank

 

http://bullandbearmash.com/chart/spot-euro-monthly-shows-wave-2-complete...

 

Euro monthly showing this - recall that Euro moves inverted against the USD - the USD goes up, the Euro goes down

Sun, 11/03/2013 - 13:19 | 4117358 kchrisc
kchrisc's picture

Some turds take multiple flushes to eliminate.

Sun, 11/03/2013 - 12:38 | 4117286 Herdee
Herdee's picture

Strangewalk you must mean "synthetic gold" or commonly called "paper gold" that has nothing backing it except a gigantic synthetic trade that has been masterminded and front run by two major New York Banks on behalf of the Fed.It has built up over time and is leveraged at 100:1.There's not that much gold to back the position and the Fed knows it.The Fed is doing a similara asset trade in today's manipulated stock market.It basically works this way,you slam down gold because you don't want people losing faith in the U.S. Dollar that is backed by nothing except debt and "the good faith in government".Go to KingWorld News for the rest.We'll see the manipulated London Gold Market collapse first,brought on by pressure from physical delivery exchanges opening up aroung the world.Like Shanghai for example.No,the crooks in Chicago and London along with the Fed didn't expect this one.Funny,you just won't be able to keep rollin over those futures contracts endlessly anymore.The world wants DELIVERY,and Central Banks are big buyers and want it too.Truth is,they see endless printing and a corrupt monetary system run by the Fed that has taken over the U.S. government.The whole system doesn't work unless you keep adding on more debt.

Sat, 11/02/2013 - 16:14 | 4115748 Yen Cross
Yen Cross's picture

  China doesn't float the Yuan and hedges it against U.S. Treasuries. Mexico is a large trading partner but let's put things in perspective.

   When you shread out the energy component Mexico is still 20% under Canada. ( a country of 34.88 million) The DXY is very relevant in usd F/X flows.

Sat, 11/02/2013 - 15:23 | 4115648 The Heart
The Heart's picture

That cat named Art is going to be on the radio again in about fifteen minutes at the link below. Listen in using your type of player for more revealing information about those evil babylonians who are behind this wickedness of population reduction, and world domination for the god money.

Check it out now and wait for him to come on at the top of th hour.

http://republicbroadcasting.org/listen-live/

Sat, 11/02/2013 - 15:15 | 4115635 gorillaonyourback
gorillaonyourback's picture

Gotta love the authors premise "somewhat better us data and somewhat worse european"
This guy is a complete idiot because he actually believes the data the guberment is shovelling

Sat, 11/02/2013 - 15:00 | 4115611 are we there yet
are we there yet's picture

Europe and American fiscal FX ratio has deep hidden bail in, bailout linkage from hidden control by the Fed, ECB, IMF. Literally most of a trillion dollars US could be sent by the fed to Europe and a congressional hearing could not find out. As George Carlin said 'the big boys have a club and you're not in it'. Neither is congress, and TPOTIS is only a puppet parasite. Invest with this model.

Sat, 11/02/2013 - 12:35 | 4115348 strangewalk
strangewalk's picture

Gold's value is measured relative to paper currencies, it has no practical value for day to day trade. Would you as a merchant take a Maple Leaf or Krugerand without assaying it first? And how would you make change? Also, there is no way that gold could be used to back any major currency unless it first rose to $50,000 per ounce; total claimed US gold reserves only amount to about $300 billion @ $1300/oz., enough to finance about one day of budgetary outlay. In times of extreme stress, gold's value is completely arbitrary--during the panicked US pullout from Vietnam, one ounce of gold was being traded for one loaf of French bread on the streets of Saigon. If the US dollar collapses, all fiat will shortly follow and the only way anyone or any country will be able to get what it wants or needs is to take it by force. You might be able to get lunch with a .38, but someone with an AR-15 will take it from you, then someone with a tank will take it from him, and finally someone with an F-15 will get it...and so on until nukes start being lobbed around, which will mean the end of everything. The fiat currency game must continue forever, there is no alternative.   

Sat, 11/02/2013 - 15:10 | 4115626 Seeking Aphids
Seeking Aphids's picture

Of course gold can back a major currency without rising to $50K (although that is a possibility too)....there is no need to have a 1:1 relationship, almost any kind of fractional relationship would work just as well.....look at the relationship between gold and the $US that existed until the Nixon era. As for day to day use, of course it would be easier to use paper/plastic/electronic currencies...that is not the point. The point is finding a way to ensure the real value of these symbols. If people cannot trust the symbol (eg paper $$) then the symbol becomes worthless.....that is what is happening with the $US as it is debased by endless QE and spending by the US government....who believes that the US debt can be repaid? What is the true worth of the $US if it is not backed by anything other than the promise of politicians who seem intent on debasing the currency and avoiding dealing with the debt? A gold-backed currency or basket of c. would be trustworthy as it could not be debased...no QE is possible with such a currency...Would that not be preferable to the current system which allows governments to avoid the real problem of finding a way to balance budgets? Currency will be with us for ever, that is not the issue. But will currencies backed by nothing be with us for ever? I hope not....and I seem to have a lot of company...........

Sat, 11/02/2013 - 14:22 | 4115548 Took Red Pill
Took Red Pill's picture

Speaking of Armageddon, anyone want to watch "American Blackout 2013" National Geographic movie that just aired recently. Shows what might happen in a 10 day nation wide black out. Someone put it on Youtube but I don't know how long it will stay up. Pretty realistic. http://www.youtube.com/watch?v=PreJvrljihI

Sat, 11/02/2013 - 20:40 | 4116261 sablya
sablya's picture

I started at that video and eventually found a really interesting interview with Dr. Paul Craig Roberts following the publication of his article, The Assault On Gold.

http://preparedchristian.net/category/prep/finances/#.UnWWrfmshcY

Sat, 11/02/2013 - 13:30 | 4115450 Blue Dog
Blue Dog's picture

Any currency can be backed by gold. That just means your imports can't exceed your exports unless you pay the difference in gold.

Sat, 11/02/2013 - 11:54 | 4115261 joego1
joego1's picture

I use my forex dartboard to predict the market.

Sat, 11/02/2013 - 11:52 | 4115260 CrashX
CrashX's picture

Cool, I actually have a dollar!

Sat, 11/02/2013 - 12:31 | 4115338 RafterManFMJ
RafterManFMJ's picture

Me too! Let's get together and buy a coffee while we still can!

Sat, 11/02/2013 - 13:15 | 4115421 ajax
ajax's picture

 

 

Ahem...just where in the world can one buy a coffee for a dollar ??

Sun, 11/03/2013 - 01:36 | 4116768 RafterManFMJ
RafterManFMJ's picture

Well that's why I said, let's get together; his dollar plus mine and we can buy a coffee. Two straws.

Sat, 11/02/2013 - 13:31 | 4115454 Blue Dog
Blue Dog's picture

You can get a large coffee at the McDonalds in Beaver Dam, Wisconsin. The one by Highways 33 & 151. That same coffee is $1.50 at the McDonalds in Appleton, Wisconsin.

Sat, 11/02/2013 - 11:41 | 4115233 Hail Spode
Hail Spode's picture

Dollar has game?  More like "games being played with the dollar."

 

Sat, 11/02/2013 - 11:25 | 4115194 Fred Hayek
Fred Hayek's picture

Seriously? The dollar has game?

That's like five guys jumping out the windows of a burning building and cheering the staying power of one whose overcoat makes him a little less aerodynamic and a little slower falling than the others.

If you're a financy boy who lives in the world of making money without ever doing a single blessed productive thing, who plays games for a living then this story might be meaningful. Otherwise this is complete dross.

Sat, 11/02/2013 - 13:23 | 4115434 Imminent Crucible
Imminent Crucible's picture

Extra points for "financy boy".

Sat, 11/02/2013 - 10:59 | 4115143 LawsofPhysics
LawsofPhysics's picture

All fiat will go to zero.  The current dollar will be no exception.  All credit/currency today can be created in an instant with the click of a button, calories (you know, the energy required to actually do anything) cannot.  So, while liquidity problems can be "fixed in an instant", there will be no escape from the coming calorie crisis.

Sat, 11/02/2013 - 11:42 | 4115230 Race Car Driver
Race Car Driver's picture

Food - the next Big Fucking Deal.

Sat, 11/02/2013 - 10:39 | 4115111 Bastiat
Bastiat's picture

The markets are as free of manipulation as communications are free of surveillance.

Sat, 11/02/2013 - 10:11 | 4115049 FieldingMellish
FieldingMellish's picture

Dead cat bounce.

Sat, 11/02/2013 - 10:05 | 4115037 MFLTucson
MFLTucson's picture

haha!  The propoganda just never seems to end!

Sat, 11/02/2013 - 09:35 | 4114992 screw face
screw face's picture

......TOAST

Sat, 11/02/2013 - 07:52 | 4114900 eddiebe
eddiebe's picture

With all the manipulation going on relying on charts to make decisions as to how and where to allocate capital is useless.

Sat, 11/02/2013 - 10:06 | 4115040 Hedgetard55
Hedgetard55's picture

+55.

Marc's prediction record sucks so far.

Sat, 11/02/2013 - 10:18 | 4115066 Imminent Crucible
Imminent Crucible's picture

Of course. It's because he spends time jabbering about technicals, chart patterns "carving out" this and "forming" that.  How dense can you be?

The dollar markets are totally contrived.  When the Fed announced the Surprise! No Taper Yet!, the USD spiked. How does that make sense, technically or fundamentally? It doesn't.  It happened because a few days before the FOMC meeting, the Fed shut down the dollar swap lines to Europe and Latin America, causing an artificial scarcity in dollar markets. Pesos and reals and euros all plummet against the dollar, and Presto! The USD avoids a forex collapse.

Nothing you see is real or organic. Nothing you see will stop or forestall the snowballing collapse of worthless paper promises.  The dollar isn't even toast. At least you can eat toast. The dollar is to wipe your butt with.

Sat, 11/02/2013 - 13:34 | 4115459 Tinky
Tinky's picture

"The dollar is to wipe your butt with."

And, given the ubiquitous cocaine residue, which of course has topical anesthetic properties, it's the ideal thing for the average citizen to use in order to reduce the pain of the regular fucking they are receiving.

Sat, 11/02/2013 - 15:14 | 4115634 Seeking Aphids
Seeking Aphids's picture

Can I quote you on that? Mr Fields couldn't have put it better!

Sat, 11/02/2013 - 10:10 | 4115019 Winston Churchill
Winston Churchill's picture

Indeed, chartology needs to be combined with proctology nowadays ,as there seems

to be a shortage of goat entrails to 'read'.

Sat, 11/02/2013 - 15:32 | 4115666 SafelyGraze
SafelyGraze's picture

in the long term, the value of the dollar can only go up

that is because of its backing by the FF&C of the you-know-what

plus, the dynamic and robust economy 

etc etc

Dollars.

Strong.

Valuable.

Enduring.

if only there more of them.

at least a hundred times more of them.

Sun, 11/03/2013 - 05:21 | 4116902 Popo
Popo's picture

You say that in jest.  But don't forget that the Yen was pronounced officially dead more than 10 years ago.   And then proceeded to rip the face off anyone who shorted it for more than a decade.  Currencies are slippery motherfuckers.   What makes sense mathematically is more than often a terrible trade in reality. 

Yeah, the dollar makes no sense mathematically.   It seems like an obvious short.   Would I trade that thesis?   No fucking way.   Good way to get obliterated...

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