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Things Have Changed: The US Dollar and UUP
Allan's is making a call for the Dollar to start a new, long-term trend upward (based on his technical analysis methods), and though he doesn't say it, if the relationship between the Dollar and stocks and commodities stays the same, this is a call for more weakness in the latter two. Question is - when will the Fed step in with another plan to drive the Dollar back down, and with it, attempt to prop stocks up, with the unintended consequence (again) of higher commodity prices?
Things Have Changed: The US Dollar and UUPCourtesy of AllanTrends, guest author at Phil's Stock World
Fundamental valuation of stocks, commodities, precious metals and almost all "things" that can be bought, borrowed or stolen, comes down to a simple propostion: The value of the US Dollar.
As the Wall Street Journal reports in "Rising Dollar: Headwind for U.S. Growth":
The greenback has been on a tear lately, jumping more than 6% in the past four weeks to reach its highest level since January against a trade-weighted basket of currencies. Politicians may like to talk up a "strong dollar," but investors know that in fact a rising currency can be a head wind for economic growth and a drag on corporate earnings.
Moreover, sharp upward moves in the dollar tend to happen during periods of financial turmoil, as a side effect of the global flight-to-safety trade
...
For the third quarter, the dollar is likely to be down only 7% to 8% against the euro. And if its rally continues, the dollar could wind up being stronger in the fourth quarter than it was a year earlier.
"We'll just get a lot less earnings support" from the dollar in the quarters ahead, notes Mr. Cliggott. The technology, industrial and consumer-staples sectors will be particularly sensitive to this.
Currency may be a small factor relative to other fundamentals in good times, but it takes on more importance in a low-growth environment.
UPP is my trading vehicle of choice for the US Dollar and as the Weekly UUP Trend Model below indicates, it is about to issue its first LONG signal since early 2010. The Daily Trend Model has been LONG since late August. Let there be no ambiguity here, things have changed, the US Dollar is rising. One trade covers all. Let's take a closer look.
UUP Daily Trend Model
UUP Weekly Trend Model
The Daily EW count is suggesting $23.50 for this move, maybe higher as the pattern develops. The Weekly model is close to reversing LONG. UUP is has not been highly volatile. Therefore it has very low option premiums. I already own the January 2012 $22.00 calls and expect to be owning more should the weekly confirm these very bullish looking charts.
Once the Weekly price threshold of $22.45 is exceeded, we should start getting a valid Elliott Wave count on the Weekly chart. I don't expect those low option premiums to stay low for much longer if the US Dollar enters its Wave 3 UP in earnest. Surprises will be to the upside, and those in-the-money calls should start raking in gains as long as the new LONG trend is in place.
A year of a rising US Dollar would offer an opportunity for substantial returns without all the angst of what assets to buy or sell. Though when it comes to the U.S. economy itself, a stronger Dollar does not bode well for economic growth.
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And Ron Paul, Rick Perry, Chris Christie or whomever WILL CALL FOR STRONG DOLLAR POLICIES!! probably before the election, CRASHING the market and making the Pres look EVEN MORE rediculous than he does now
But, whats that? I smell a Bernank cooking!?
If the dollar gets significantly stronger, what companies does that affect most?
Companies that import and sell a lot such as WalMart, Amazon, etc?
Could this have a significant, adverse effect on either their pricing(or their profits) over the upcoming holiday shopping season?
I can't imagine how one would trade the UUP without referencing the $DXY, which this article makes no mention of.
Using the $DXY as a guide, a long signal was given a few weeks ago. Also, I'd look for the next tough resistance to be in the 81.15 range. I don't really know where that would be on the UUP chart.
Also, the EUR/USD would be a very strong indicator for the UUP since the EUR carries about 60% of the USD weight. All the bad news coming out of the Euro zone should have been all the indicator anybody needed to get long the dollar.
Trading the Dollar based soley on the UUP chart is really flying blind.
What price target to exit from the trade?
hold off on the gold-peg, we'll postpone consideration
Funny how the dollar index is higher than it was 3-4 years ago and yet so many people seem to believe it's done nothing but go straight down.
+1
Crude affordability issues place an iron bound on dollar weakness. As long as crude prices in dollars, the so called devaluations will continue to be inherently self defeating.
AND it's a good thing to "sell" the Treasuries to foreign investors !!
It's not all bad for the US outlook. The US imports everything (ok, two things: oil and china) and the extra money in people's pockets from cheaper gas (explicitly, and implicitly in the price of everything) might help the consumer deleverage.
Yes we were having a mini export boom there but the US is not going to export itself out this mess.
Yes, it's hard for me to sort out how all the effects of the moves in the $ - some good and some bad, for some groups vs. other groups. I'd love to find a good, basic article explaining how it plays out, and who benefits in each direction, and by how much.
Yes, it's hard for me to sort out how all the effects of the moves in the $ - some good and some bad, for some groups vs. other groups.
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A strong currency is always good for a manufacturing import dependent country-
It allows by the cheaper import prices for the manufactures to lower export prices and compete fairly in a global market place without loading the cost burden (higher prices) of a devalued currency onto the populace via inflation/taxes-
That is the bankers game-sucking away through devaluation-the countries wealth derived from labor and the extraction of their resources-the only true wealth there is-
Agree ilene--
Gold will be a bit later-but it will be there-
theme tune for your post-
http://grooveshark.com/s/Things+Have+Changed/3ZAgBq?src=5
Perfect theme song. And I didn't know of the grooveshark.com site, so double thank you.