Here is a monthly chart of USD we have used in NFTRH. The bull market began back in 2011 as the last inflation hysteria blew out. The key rally came in spring/summer of 2014 when a majority were still touting the death of the dollar and the rise of the euro. At that time I had targeted the euro to extinguish at around 140 +/- (it topped at 139.93 in early 2014, close enough for government work) using monthly charts but had no idea how strong the dollar would then become.
We charted its early rally by daily charts and then made kind of a big deal about it when it broke out above the first support level (then resistance) noted below. This went hand in hand with strengthening signals in the economy. USD has since gone on to establish new support levels and currently targets 105 (+/-) by holding support levels to its big breakout pattern. All good, yeh?
Yeh. Except that the economy is now ‘servicing itself’ as we have shown that health services, leisure and entertainment services and various other services, i.e. the back end of the economy, are doing all the lifting now. Manufacturing is flagging, exports too. The question is how long can this be sustained?
Under a certain scenario, the US dollar will run with the gold sector. That is why, while maintaining a bearish stance on the sector, I certainly do not fear the strong dollar as a gold bug. We are in the process of weeding out the charlatans, the easy answer brigade, the “Chindian Love Trade” promo and all the other noise. When the relentlessly strong USD wears at the economy and stock market, the right scenario will be in play. Here is a cute little chart we showed in NFTRH 369…
As gold rises vs. silver amid global economic stress, the US dollar is naturally supported because it is after all, the other Horseman.
Draw your conclusions. I’ve already rambled beyond what I thought would be a quickie chart update. Dinner’s ready.
It is time to think about a world with a new King Dollar, same as the old King Dollar. It is time to think about the vast services economy that boomed the payrolls report (see awesome graphical breakdown at NFTRH.com), manufacturing be damned. It is time to think about expanding consumer credit that is part of the mechanism booming the services. It is time to think globally and domestically about how to be allocated in such a situation.
NFTRH 369 is going to take what its writer is thinking about and try to make some sense of it all, because I think there are some beneficiaries (as with the Goldman/Banks post earlier) and there are some whipping boys (as with precious metals and commodities). But again, there is spiking consumer credit so even if allocated correctly, bulls are asked to temper themselves and at least understand where the fuel is coming from.
Anyway, here’s the Uncle Buck ETF UUP replaced with actual USD chart…
A real time view of the US dollar index by daily chart. Today the trend line support was just about hit. Lateral support resides at 94-95. RSI is not over sold, but it has dropped to and through levels where it bounced in the past. This is actually a negative on balance now that it is below 50 and is in a deeper correction than any since the rally started last spring and summer.
Here is a longer view that includes the rally’s beginning. Notice how the major trend line (as opposed to the short-term one above) intersects the lateral support cluster. That is what we’d call some nice confluence and I’d expect that pending interim bounces, Uncle Buck can make its way down there. But it remains bullish on a bigger picture.
Our pals at NFTRH.com noted the move in USD/EUR, with the FOMC acting as an accelerant to already likely short-term events. We, I mean they also babbled a bit about the gold miners.
But the following chart of hedged Europe fund HEDJ and three unhedged Euro items shows why I got rid of the way over crowded ‘currency hedged Europe’ trade. If a Euro bounce and USD drop were likely, that hedge no longer made sense.
Note HEDJ negative while EZU pops.
I currently hold the last two items in the panels below per ongoing analysis about European exporters (a big pharma and a diversified industrial/manufacturer). So far so good. Not sure yet if I am going to take these profits. I have to run, but need to think about the markets tonight (and I am sure NFTRH will have an update in the morning).
I’ll be the first to admit I’d have expected a correction in the US dollar by now. Don’t get me wrong, NFTRH was on the fledgling USD rally last summer when it was still considered by many to be just another beaten up combatant in the currency wars. But in thinking it had gone too far on over bullish sentiment, I was wrong in January. Indeed, as noted a couple weeks ago in NFTRH 331: “I continue to be proven wrong in expecting the US dollar to correct. Further, at this juncture the weekly chart pattern looks more like an over bought consolidation than a top.”
Moving on, the consolidation worked off the over bought situation by daily charts (weekly remains over bought) and today USD is making a new high.
As for the Euro, the monthly works best to see where this thing may be headed. As noted in NFTRH 332: “Euro has failed to bounce by shorter-term charts and so the monthly is back in play with the lower channel line beckoning.”
With Uncle Buck’s break upward, this still looks to be the case.
There are many funny stories out about disinflation these days. The meme has gotten amazing momentum, even more than it usually does at this time of year (see my post last month, “Seasonal Allergies“). One of the most amusing has been the idea that the decision by the Bank of Japan to greatly increase its quantitative easing would be disinflationary in the U.S., because the yen would decline so sharply against the dollar, and dollar strength is generally assumed to be disinflationary.
The misunderstanding of the dollar effect is amazing, considering how easy it is to disprove. Sure, I understand the alarm at the dollar’s recent robust strength. Of course, such a large and rapid move must be disinflationary, right? Because who could forget the inflationary spiral of 2002-2008 in this country, when the value of the dollar fell 25%?
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[ed: I thought I’d post this here as well as NFTRH.com, since it is commentary based]
Excerpted from the November 2 edition of Notes From the Rabbit Hole, NFTRH 315. Public readers please filter with the idea that the style of writing meshes with much of what was included in the report that preceded it and hence, maybe appear to be a little vague in some areas.
Currencies & Commentary
In light of the news from the land of the rising sun and the sinking currency, let’s reserve NFTRH 315’s only real charting for a big picture monthly view of currencies, to which we usually give just a brief update, and then some misc. big picture monthly charts [not included in this excerpt] as we try to gain perspective on things that may seem illogical to our rational minds.
Yen is losing the next level of support. BoJ saw that support too. I’ll bet they also took note of the big October bounce and found it unacceptable.
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