BEARS IN WINTER
U.S. Dollar Index, Weekly
picture is more comical than apocalyptic. If we remove the fear of the fiscal cliff and just
focus on the US economy itself, growth was seen in 2012 as a variety of weekly, monthly, and quarterly reports would attest. The argument has been made (again disregarding ‘The Cliff’ for a moment) that these little bits of improving news could embolden the Federal Reserve to finally move the Fed Fund rate out of the vague 0% to 0.25% that it has been at for as long as many can remember. And a higher fed fund rate could be just the fundamental spark the US dollar index needs to follow through on some of its bullish technical signals established over the last quarter of 2012. Every market has a structure that consists of two
Source: Bloomberg
of commodities, it is important to look at its fundamentals to better understand what could happen in 2013. Going back to the US Presidential election, President Obama and Congress face a difficult task of restoring domestic financial health with a somewhat simple solution. Think of it this way: How many times have we (people in general) been told that the easiest road to better health is to lose weight? And, the best way to do that isn’t fancy fad diets or machines that melt away the pounds, but simply eating less and exercising more. The same is true in the US, where the most logical solution to the problem is to decrease spending and increase revenue, the latter almost always meaning more taxes.
sides: the fundamental side and the investment side.We just discussed a possible fundamental shift in the US dollar index, but what about investors? As mentioned above, since late September the index has been more technically bullish than it has been in quite some time. Most of this is due
to renewed investor interest viewing the US dollar as the ‘least worst’ of global currency choices. Just as the commodity sector has a solid inverse relationship to
the US dollar index, the latter also tends to move counter to the spot euro. Therefore, continued weakness in the euro tied to what has been called the slowest train wreck in history, the European economic debacle. As the end of the year approaches the charts show the spot euro in a downtrend with technical support pegged between 1.2729 and 1.2470. If the latter fails to hold then the technical argument could be made that the spot euro could slide all the way back to the 2012 low of 1.2052. While the euro is trending down the US dollar index is
Every market has a structure that consists of two sides: the fundamental side and the investment side
A couple of things stand in the way of
such a simple solution. To begin with, it is logical – and politicians are not driven by logic, but by staying in office. Secondly, in a system that has been brought to a standstill by evenly divided branches of government, it is unlikely there will be enough crossing of party lines to affect matters substantially. Add in the fact that due to holidays, Congressmen and women will only be at their jobs for approximately 12 days over the next four weeks as the US economy speeds towards the ‘fiscal cliff’ and the
10 December 2012
moving up. However, it too is at a key levels testing technical price resistance between 81.350 and 82.285. If the dollar finds strength from both sides (investor, fundamental) a possible test of the 2012 high of 84.100 could be seen. Do you see the inverse symmetry between these two markets? Both are at key points as I write, both could see a change in direction, yet both are pointing toward a continuation of the current path to a possible test of this year’s key points. Given this backdrop, it is interesting to
note that the CCI is further along in its trend (in this case down) than the other
two. Its’ chart shows technical support near 550.47, then 534.00 with little chance of it approaching its 2012 low of 502.28. Why the slightly different look to commodities? The answer lies in global fundamentals of key markets. The situation in the Middle East always draws attention to two
of the big three markets: crude oil and gold. Given oil’s role in the region, traders are keeping a close eye on developments, looking for signs it is spreading to more market sensitive Iran. Put “Iran” in a headline and the Brent crude oil market is expected to respond, pulling the more sluggish WTI (U.S. domestic) market with it. If the region calms down and there is no perceived threat to global supplies, then the general opinion of a continued slowdown in global demand should keep the market under pressure.
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