This morning, we are seeing the U.S. dollar rally and other asset classes sink. This puts a dent in the bull run we’ve seen in stocks for months. The Wall Street Journal asks today: Is This Bull Cyclical or Secular?
The Journal concludes that this is a cyclical bull market in a larger, secular bear market.
The US Dollar is up sharply against the euro today. In today’s Black Swan Currency Currents, John Ross points out a h&s top forming in the euro/usd pair. Driving the move seems to be fears about toxic bank debt in Europe. The consensus, as expressed in this Financial Times story, is that America has dealt better with its toxic debt than Europe has.
My short-term view on the U.S. dollar hasn’t changed, except it may rebound higher than I first anticipated …
Looking at the chart, you can see that an inverse head-and-shoulders pattern is forming in the dollar. If this pattern fully develops and breaks its neckline, that could signal that the dollar index is going to rally not just to its 50-day moving average (around 82.50) but to its 200-day moving average (around 84).
The dollar is driving everything. As I said in the video I recorded for MaM TV on Friday (you can find a transcript on my blog), I think crude oil is going lower now because the dollar is going higher. Fundamentals don’t apply in crude at the moment – it’s primarily the anti-dollar.
Gold should act pretty much the same way, but we’ll see.
I believe a short-term dollar rally will set us up for some great opportunities. Still, I could always be wrong, and I’m prepared for that as well.
In Other News
McClatchy: It Will Be Years Before Jobs Return To Much Of US
“This recession is unique because of the way it leveled the playing field,” said James Diffley, IHS managing director of U.S. regional services. “The precipitating factor, after housing, was the finance industry, and that affected everybody. Now everybody’s cutting back on debt, and the banks are being more cautious about lending, so there’s less spending. All those things mitigate against a quick turnaround.”
“Although we expect the economy to bottom out in GDP terms during the second half of the year, job losses should continue throughout 2009, with the unemployment rate peaking just above 10 percent,” said IHS chief U.S. economist Nigel Gault in a recent letter to investors. “We still expect total job losses to exceed 7 million. But the worst news is behind us, and employment declines should progressively soften as the year proceeds.”
Foreign demand for US financial assets falls
The Treasury Department said Monday that net purchases of stocks, notes and bonds obtained by foreigners fell to $11.2 billion in April, from $55.4 billion in March.
China, the largest holder of U.S. Treasury securities, trimmed its holdings to $763.5 billion in April, from $767.9 billion in March. Japan, the second largest holder of Treasury securities, reduced its holdings to $685.9 billion, from $686.7 billion a month earlier.
IMF Raises Forecast for U.S. Economy, Calls for Steps to Cut Debt Concern
The IMF forecasts the world’s largest economy will contract 2.5 percent this year before expanding 0.75 percent in 2010, according to a statement today after an annual staff analysis of the U.S. In the IMF’s World Economic Outlook report released in April, the U.S. was forecast to contract 2.8 percent this year before stalling in 2010.
Gold Declines to Lowest in Three Weeks as Strengthening Dollar Cuts Demand
Gold fell to a three-week low in New York and London as a stronger dollar eroded demand for the metal as an alternative investment.
European Payrolls Contract by Most on Record as Recession Forces Job Cuts
Europe’s economy lost a record 1.22 million jobs in the first quarter as companies cut spending to survive the worst global economic slump in more than six decades.
Wealthy Miss Opportunities as Markets Paralyze Investors, Barclays Reports
Rich investors are paralyzed because they are concerned markets may decline further, said Philippe Sednaoui, chief executive officer of Barclays Wealth in Switzerland.
Related Posts
- A Surge of Bullish News for Commodities (07/15/09)
- Video transcript: Croak of Doom for the Dollar is Bullish for Oil and Gold (05/12/09)
- 3 Stocks for Appearance on CBS Radio in Chicago (03/04/10)
- Bullish Uranium News? (04/17/08)
- The Big Picture in the S&P 500 — Bullish or Bearish? (02/04/10)
{ 2 comments… read them below or add one }
Sean, can you explain the difference between DXO and UCO and how best to track an play them?
Hi, Al
If I decide to use DXO and/or UCO in Red-Hot Commodity ETFs, I’ll explain the difference at that time.