I just read an interesting article in SA, penned by Christopher Diodato, that suggested the US Dollar is now at its most vulnerable stage to a major decline in the last 2 years.
As the author points out, US FED monetary policy has been anti-US Dollar for at least a decade, ruthlessly so in the last half-decade, continuing through Bernanke's desperate attempt to 'fix America' and the global economy through funding another housing bubble -- which is a desperate attempt to reflate what is non-reflatable. Preserving debt is not what is needed for a deflationary cycle to run its course; destroying debt is what is needed.
I read earlier this week that Bernanke spent the last several weeks traveling to European capitals imploring European financial leaders (is that a contradiction in terms) to 'sell the US Dollar with all their might'.
Why not? Europe is fixed, is it not? All Europe seems to need is another rash of 'confidence binge' buying of the Euro to 'fix' the global mess we are in -- apparently Ben believes manipulation of the commodity market is the only way to really fix the global meltdown (DEBT DEPRESSION) we are experiencing.
I have been predicting recently -- see recent instablogs -- that US (and, therefore, global) markets are topping and now is a time to take profits after this last 'ghost rally'. Stocks and stock indexes seem to be topping and VIX and gold stock indexes seem ready to rally.
An earlier suggestion I have been promoting is that US Dollar strength (this is not historically true, but has been true over the last decade) is bearish for global stocks -- inherent in the linking of these assumptions is that the US Dollar is recovering from recent selling.
Why would the Dollar be recovering, certainly not for fundamental reasons: Bernanke still has his job, and his "Kill the US Dollar Order" is still in place -- "QE Infinity". Ok. Not for fundamental reasons, but for 'political reasons' maybe? We know that Europe is not fixed. We know that more debt is NOT what Europe needs -- more debt is NOT what the world, or what the US needs either -- but that more debt only 'buys time' in the hope that some miracle will lift the global economy out of the quicksand in which it is stuck -- mud, quagmire, is a mixture of Earth and Water for those mystically inclined.
Is the Euro exhibiting weakness now? Not really. Let's look at some charts.
The UUP -- US Dollar Bullish ETF -- seems to be trying to make a bottom. UUP support, short-term, is 21.68. If this breaks, Dollar bullishness takes a hit.
THE USD-Canadian Dollar is also trying to bottom. The second pane is ready to issue a buy signal if the short-term trend (T5 Simple) turns up. The blue line, pane 2, is already positive, which is 1/2 of the buy signal.
USD-Japanese Yen is also suggesting a USD bottom, which only the short-term trend again (black line, pane 2) needing to turn up to generate a buy signal.
USD-Euro is not so clear. It appears that the USD is also trying to bottom against the Euro. 76.17 the support level (short-term) that the USD-EUR does not want to break, from the perspective of USD bulls.
This is not so clear because the FXE, Euro-USD ETF is not showing a top in Euro strength, which we might expect to see.
If Bernanke's plan works, to reignite the housing bubble, and weaken the US Dollar, in order to create another stock and commodities bubble, we should be seeing commodities ready to take off in a steep inflationary climb. We don't see that.
None of the commodities stocks we looked at appeared ready to stage a major rally:
Of all these charts, only lumber is attempting to break through resistance and go higher. There is still strength in the Lumber ETF -- strength, in this case, meaning more buyers than sellers, buyers fueled probably by the illusion that the American housing market is back. This is another illusion based on the mismanagement and misunderstanding of Mister Bernanke.
I am not a big fan of the US Dollar at this point. But I see no evidence that the USD is at the verge of a historic collapse. On the contrary, I see evidence that it is trying to bottom.
The one commodity I mention in my earlier article that seems intent on rallying is gold. Can gold and the US Dollar rally together?
We are living in strange time. Here is a picture of the Gold Stock Index that seems to indicate that gold stocks are not ready to give up their ascent.
Best of good fortune in trading.
Michael J. Clark, CGTS
Those interested in reading why Bernanke's plan cannot work may find this instablog useful, which looks at the Four Seasons of the Economy in terms of The Dow Jones Industrial Average since 1929.
Bernanke's plan -- and the global plan -- to reflate the economy cannot work for the simple reason that there is a season of Inflation and a season of Deflation and these two seasons are in opposition, like Spring and Autumn are in opposition.
THE FOUR SEASONS OF THE ECONOMY
Reflation Period: 1983-1992: (Corresponds to Winter): slow, unsteady growth after a long Deflation Period. Planting.
Inflation Period: 1992-2001 (Corresponds to Spring): Unrestricted expansion and inflation of economy. Growth
Disinflation Period: 2001-2010 (Corresponds to Summer): Expansion ends; attempts to continue expansion through monetary manipulation only slows deflation but cannot reverse it. Harvest.
Deflation Period: 2010-2019 (Corresponds to Autumn): Unrestricted contraction and deflation of economy. Decay and Death.
20th Century Global Cycles:
Reflation Period: 1911-1920; 1947: 1956; 1983-1992; 2019-2028.
Inflation Period: 1920-1929; 1956-1965; 1992-2001; 2028-2037.
Disinflation Period: 1929-1938; 1965-1974; 2001-2010; 2037-2048
Deflation Period: 1938-1947; 1974-1983; 2010-2019; 2048-2059