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US Dollar Reserve Status Tests

The global video charting links that are attached to these articles reveal the technical side of each market discussed, and paint a visual picture of how global market trade is unfolding.

Since the inception of quantitative easing programs by the Federal Reserve and fiscal expansion policies by major central banks during the course of 2010 and 2011, traders and investors have had to adjust fair value on each global classes, and adjust what each can be expected to return when running through unique and challenging economic times. Be it equities moving from a long-term investment towards to a high-frequency low-volume trading vehicle, or be it the balancing of bond yields to bond values, or bullion trade to bullion investment, there have been massive changes in the perception of safety, risk, and expectancy over the course of the last 18 months in any asset class.

Be it by default, or by design, the implementation of the Federal Reserve's quantitative easing programs have created massive global inflation in consumer price index reports, which reveal the necessity for the global market to once again strongly consider the viability of the US dollar as the global reserve currency. The reality of the US dollar losing the status in the near-term carries little weight, however in the mid-to long-term there does look to be a move into the precious metal market as a reserve asset class, which is creating a new-generation pseudo-gold standard that may set the benchmark for central-bank reserves going forward.

Equity markets have seen buying at recent tests of support, buoyed by low-volume, high frequency, trading that is very susceptible to intraday swings as regional markets open and close. Most indices have become very reactive to breaking news headlines, and also susceptible to high-volume drops that run for two or three sessions. The concept of equity buy-and-hold investing is being challenged, and the halcyon days of buy, collect a dividend, and then bank stock appreciation, will need to be addressed if the high-frequency trading arena does not convert itself into something a little less volatile very soon.

For over a decade, buying the main equity indices has not created appreciation without having seen massive draw-downs, which has created a net sum gain for most, and massive losses for those who bought and sold as the equity roller coaster completed its journey.

Interest rate markets are running the gauntlet of offering low yields and relatively low note values, in historical moves that are seeing inflationary economic pressure without growth. Major central banks are unable to afford an increase in interest rates to tame inflationary commodity pressures, yet require higher rates to tame synthetic inflation.

Commodity markets continue their upwards moves, which is in direct response to, and a hedge against, currency manipulation rather than economic expansion and global growth. Precious metal and bullion markets have been able to seize on US dollar weakness, leading to rampant moves higher in the value of gold, silver, and most hard commodities. These moves have also been replicated in crude oil trade, which now joins the global market elite as an asset class used no longer to balance forward supply and demand, but used just as much as an asset class that can act as a form of reserve.

Currency market trade is in a pattern of trade that has most 24 hour price action contained within one or two 1-hour chart time frame moves that then consolidate hard. Tuesday trade is a prime example, with most currency pairs initially testing US dollar support, reversing to test resistance, and then finding themselves at the opening prices as Wall Street trade opened. It will now be a hard-fought battle to keep the dollar index under 76.00 through to the end of March, with regional central banks having to react to increasing regional currency values that are putting pressure on export prices, in economies that are also having to also absorb US dollar-based commodity inflation.

In general, there seems to be no doubt that a new global reserve will have to be created, however there is no way in the near-term that the US dollar can be quickly replaced by any other asset class. Long-term, the outlook could be the precious metals take their rightful place as a commodity that backs the fractional and fiat manipulation of the current banking system. Massive changes are afoot, as globalization takes a quantum leap into areas very few would have fought possible just a few short years ago.

Buy the dips on gold and silver, be ready to sell into high-volume equity drops, and bank early and often when trading the US dollar, seems to be the near-term mantra. Full price point analysis will be provided in the daily Sentiment and Momentum Indicator update that is sent to clients just after 17:00 ET.