Monday, April 12, 2010

U.S. Dollar Index Update...

The U.S. dollar appears to be breaking down now.  The chart has a very bearish set-up formation and the Big Banks have a big short position in the dollar and a corresponding big long position in the euro.  With regard to currencies, it's usually - though not always (see Soros vs. the British Pound circa 1992) - a bad bet to bet against Big Banks.

Gold is behaving similarly to the way it did in late 2005, when it moved for a short period higher in tandem with the dollar and then ran up another 33% from early 2006 to May 2006 while the dollar went into an inexorable decline.
(click on image to enlarge)


  1. We need to have a weekly close below 79.55 for the chart to turn bearish.

  2. Not sure where you're deriving your 79.55 number from unless it's some kind pivot calculation. I think the chart looks pretty bearish as is on a daily and even more so on a weekly basis.

    I do use technical chart analysis as one component of looking at investment decisions, but it's not gospel. Here's a great example: Take a look at the daily chart of SA - Seabridge gold. My fund partner, who's been doing chart analysis since the 1970's, said he thought the chart looked awful in early March. Indeed it did. We didn't take a swing position in it. Look at it now. Seabridge on a fundamental basis may be sitting on the largest gold deposit in Canada. SA is still very cheap on a fundamental basis. Not as cheap as it was a month ago though, despite what the chart was telling us...

  3. Nice chart. I hope the line holds. I have drawn lines before just to seem them break again. But this looks like a good one.

  4. Dave,

    I'm confused as to why the banks are betting on the Euro, I thought it was in as bad as shape as the USD due to the issue with PIIGS.

    I read somewhere that Greece may issue debt in USD, if so, wouldn't this make USD index go up? Could this also have something to do with the 420 billion FED loan that KD on TickerForum was talking about the other day?

    I apologize if I'm missing something very obvious.

  5. Jenn, be careful with information passed on market ticker. That $420 billion was likely currency swaps. Some of the money may be connected to Greece and maybe not. Without transparency and an independent audit, we just don't know.

    A lot of crappy conspiracy drivel gets thrown around the internet and market-ticker propogates a lot of it. I will say there is also some good information passed on that forum, but you have to be careful.

    FOR INSTANCE, they are posting this chart and saying that it's the commercial banks flooding the market with lending activity:

    That is NOT what is behind that chart. What is behind that chart is a FASB rule change as of 3/31/10 which required to banks to move a lot of off-balance-sheet crap onto their balance sheet. Please read this link for the Golden Truth:

    That big spike in the chart above is a pure accounting change. Period.

    On a fundamental basis, the EU is in much better shape than the U.S. and therefore the EU is "less worse" than the dollar. The Big Banks are playing the hedge funds. Notice all the hype about the dollar on CNBC and Bloomberg. Large and small speculators alike have piled into the dollar, driving it higher and the Big Banks are taking the other side of the trade. Same thing in the euro: specs are record short and Wall Street banks have taken the other side. You can get all this data in Commitment of Traders report which is issued every Friday afternoon.

    Think of the U.S. dollar as a stock representing the health of the U.S. economy and system. You think it's healthy?

  6. The uptrend might still be roughly contained within two parallels.

    And Greece is doubling up: ""40 billions for 2010 is part of a bigger amount for the three-year period. A logical amount for the three-year period would be double than 40 billion," the official told reporters."

  7. Yes the uptrend for the dollar is still in an uptrend depending on how precisely you draw your lines. Having said that, the momentum indicators are pointing down (not just the macd and the rsi) and the dollar was briefly well below yesterday's low before they "caught" the markets.

    To be sure, the technical picture can easily get weaker longs to launch their positions and that could trigger bigger stops.