Thursday, September 2, 2010

Is The Dollar Rolling Over Already?

I decided to check in with the chart of the US Dollar index this morning.  When the dollar bounced from a rediculously oversold "technical" condition in early August, I was thinking it would move back somewhere into the 84-86 area.  I'm too lazy to run a fibo analysis, but I'm sure that area correlates with some magic, pre-programmed "black box" fibonacci lines.

When I looked at a daily and weekly chart this morning, I was somewhat startled to see the dollar "rolling over," accompanied by a bearish formation in the macd and slow stochastic momentum indicators - especially the slow stochastic.  Here's the daily chart:

(click on chart to enlarge)

As you can see, the dollar dropped down to its 200 dma in early August, accompanied by a very "oversold" reading on the technical indicators.  A bounce was to be expected.  But what has been unexpected is what appears to be the brevity of this trading bounce.  At this point it looks like the next move is for the dollar to sell off down its 200 dma and that will be a key "test" level.  That should occur in the high 81 area.

The fundamentals point to an eventual collapse in the dollar.  At some point the Treasury/Fed are going to have start really printing money to cover all of the terminal cancers festering and growing in the system:  State insolvencies, massively underfunded public pensions,  the obviously the massive Federal spending deficit and related Treasury bond funding requirements (with one month left the Govt has issued $1.5 trillion in new debt this year, which is the true measure of the spending deficit), and obviously the deteriorating economic conditions.  The list is bigger and many of us know what the variables are.

Furthermore, expect that gold and silver will show surprising strength as the dollar continues on its downward path.  Many people are scratching their heads over the surprising strength in the metals during the last two weeks, traditionally a period when the bullion banks send the metals lower ahead of the Indian seasonal buying and while trading volumn is low prior to Labor Day. I suspect this strength is forecasting a lower dollar.  This is underscored by the fact that most sentiment indicators are still showing very negative sentiment in the gold investment community, including the "Gartman" indicator.  Gartman has been one of the best contrarian indicators during the last 5 years and about 3 weeks ago he issued a veiled "go short" call on gold. LOL.  Thanks Dennis - remember, those who can do, those who can't publish market newsletters (the exception being Richard Russell, of course).

Finally, I'm not ruling out a possible continuation of this bounce in the dollar.  All it will take is some hefty intervention in the yen by the Bank of Japan (something that has been hinted at, as Japan is getting nervous over the big move higher in the yen) to send the yen lower and the dollar index higher.  But then again, if the BOJ manipulates this, it will likely send Japanese investors to seek refuge in gold, just like the Europeans have been doing for the last six months.


  1. So does it mean we are going to be rich soon or something? Because that waiting makes me a bit annoyed..

  2. YES Dave! Gartman is the ulimate contrarian indicator for buying gold before a rise.


    You(Dollar Dave) are the Ultimate contrarian indicator for the USD.

    I'm NOW long the USD vis a vis your post.

    Thanks Chico. I'm already up.

  3. Eric De Groot sez that once Silver clears $20.18 the $38.25 Silver magnet is in play. Will we get another overshoot to $50+ where the Silver shorts get cremated and swept off the floor in dustbins?

    Joe M.

  4. LOL. You might squeeze a point or two out it. I'll be shorting any strength. I'd like to point out that I have been right about the dollar, I was just early. I shorted last time at 84, 86 and 88. Where is it now? Hmmmmm...

    Just like this time around. Not shorting here yet but will if it gets closer to 84.

  5. Relax stibot. Name one asset class that has done what gold/silver have done over the last decade.

    The problem is that the steep, violent corrections are accompanied by a lot of "noise" and the moves higher happen quietly.

    Notice many "cash for gold" ads lately? The public has likely been largely cleaned out of junk metal and now the scrap flow will subside. Russia is buying the IMF overhang. The U.S. is out of gold. The ECB is largely out and what is left is not being sold...

    The risk in this market is not being really long and missing a big move higher vs. sweating over the possibility of a manipulated 10% pullback.

    Sentiment is horrible.

  6. For sure that's the breakout area on simple chart analysis. As far as what the breakout "objective" would be, it's all "art" and no "science."

    Turk and a few others think low $30's is achievable this year. I think that's optimistic unless we get some kind of unforseen "exogenous" event like that rumored lawsuit or a big fund decides to take on JPM's short ala Soros.

    I think we could easily see low-mid $20's this year.

  7. The dollar index is an archaic compilation of other fiat garbage, and most certainly does not reflect the true loss in buying power already experienced by dollar holders. What constitutes "wealth"? Go to the grocery store/gas station, heat/cool your home, consider your medical and education costs, and, of course, the dramatic increase state/local/federal taxes.

    The dollar has already been ravaged, regardless of what the DXY chart tells you.

  8. "Notice many "cash for gold" ads lately? The public has likely been largely cleaned out of junk metal and now the scrap flow will subside"

    Great point! I was thinking that last weekend as I did not see one of those commercials!

  9. So there you have it - an observation from Massachussetts and one from Colorado. Two geographically diverse data points. Public is cleaned out. I was at my favorite local coin dealer today and there were 2 people in their buying. Usually when I drop in there in the past, it's a bunch of people dumping jewelry.

  10. That's true Shawn, especially over a long period of time. But now you have all those garbage fiat currencies taking turns devaluing, so the dollar "appears" to stay afloat longer.

    It's the von Mises currency devaluation race to zero.

  11. Hey, it's pretty funny how MOST OF US don't seem to connect to what we read in the history books.
    Like... history is NOT THE PRESENT, it's THE PAST.
    So... it's not going to happen again. It CAN'T HAPPEN AGAIN.
    Particularly... NOT TO US, goddamit. We're... special, right ?
    But if we know anything about history we know that fiat bottoms out regularly. (That's what I said...)
    Generalized lack of trust (leading to large scale decadence) in society brings THAT about...
    As for me... I'm learning gardening skills.
    Gold and silver won't put food in your mouth.
    Ask Midas.
    But the predicting GAME sure is consuming lots of energy that we could be employing (...) learning gardening skils, for example.
    Think "Candide". The end...

  12. Agree Debra. However, I CAN trade my gold/silver for some of the stuff you garden! I have a brutal "brown" thumb and I hate pulling weeds. lol

  13. The Gold chart looks like it has developed a powerful stairstep pattern where periodic consolidation helps to fortify a solid base and it looks like we are doing some consolidating today.

    BTW, that Debra girlfriend posts alot over at the SuddenDebt blog.

    Joe M.

  14. WTF! I missed the silver move today! I did not crash the metals market!


  16. just wondering what the price of gold will be if the recovery becomes expansion and interest rates start to go up

  17. bix1951 - what recovery? don't tell me you are drinking the Govt/CNBC/Wall St/media kool-aid...

  18. LOL GYC. Midas and I exchanged emails about the same thing, because he and I are usually bullish at the same time, announce our bullishness and then the market gets whacked good by the cartel.