Not long ago, I made a video about the pullback in oil. I said if we were very lucky, it would pull back to 77. Well, I must be extra super lucky, because it’s pulling back deeper than that. In fact, this Daily chart of oil is downright bearish.
So, I’m not feeling lucky at all. If crude oil doesn’t find support at 72, it could keep going lower.
Crude oil is acting like a currency, and being hurt by the U.S. dollar’s rally. The dollar’s rally, in turn, is powered by a 1-2-3 Combo …
· The recent election results in Massachusetts hold the potential for a deadlocked Congress after elections this year. A deadlocked Congress is expected to spend less money. This boosts the dollar.
· China is reining in bank lending. This is weighing on commodities, especially crude oil.
· The sovereign debt crisis in Europe’s PIIGS – Portugal, Ireland, Italy, Greece and Spain. This is making some investors feel that the Euro itself could be in trouble. This boosts the dollar. And Europe’s troubles could weigh on its oil demand.
Personally, I believe Europe is feeding the worries over Greece’s debt as a way to fix the problem of the euro being overvalued. Despite the fretting, the Europeans love this. The Germans can export again – Chancellor Merkel is going to raise all the sturm und drang she can over this. I think that eventually Europe will bail out the Greeks.
As Ilargi at The Automatic Earth pointed out recently, just look at the numbers …
Greece has 11 million people, Germany, the most populous EU country, has 82 million. The EU has over 500 million. Greek 2008 nominal GDP was $357 billion. Germany’s was $3.65 trillion, the EU as a whole $18.4 trillion, the Eurozone (countries that use the Euro) about $12.5 trillion. The size of the Greek population and GDP is far too small to even entertain the notion of allowing it to break up the union.
But the Europeans are happy to let this “crisis” push the euro lower. Take that, China!
Nonetheless, the “buy” signal in the U.S. dollar index is a powerful signal.
This kind of move, if the dollar follows through, could be good for a least a 3-month move to the upside.
The long-term picture for the dollar is still very bleak. The Senate is about to raise the debt ceiling again, by $1.9 trillion. This would put the limit of the national debt at the same size as GDP. We are still waging two wars while trying to enact new social programs – that’s very expensive. And the banks could very well need another bailout. But that’s cold comfort if we see a months-long rally in the dollar.
We will see what Monday brings. Subscribers, I’ll have issues to you on Monday.
Related Posts
- Keep Your Eye on the U.S. Dollar Index Today (03/26/10)
- US Dollar Index Chart — Headed Lower? (03/16/10)
- Christmas Eve Check on the US Dollar Index (12/24/09)
- 2 Charts on the US Dollar (04/28/10)
- Charts of US Dollar and Euro (06/21/10)
{ 2 comments… read them below or add one }
Thanks for the charts and your view on where we could go from here. As is usually the case with my impeccable timing, I added Merk Hard Currency Fund (MERKX) to my 401K package about 2 weeks ago because I thought the dollar uptick had run it’s course. Nice.
Hi, Darryl. Oh, so you have the same timing I have, eh? LOL! Don’t worry, the dollar could rally for a while, but the long-term downtrend for the greenback is still in place, and there’s no courage in Washington to change the underlying problems that are killing the dollar. So, your gold bets should pay off longer term.