Wednesday, May 22, 2013

DAN NORCINI: US Dollar - back to being King


US Dollar - back to being King

It appears as if the globe is convinced that any economic recovery is going to begin here in the US first. It certainly is not going to be Europe that is leading the way. Data from China continues mixed while Japan is gaining traction at the expense of their currency. That leaves many investors from abroad looking to put their risk capital to work in the US equity markets. That is creating strong demand for Dollars with which to buy boatloads of US equities.

You can see the effects of this in the dollar chart. Note this is a weekly chart I am using. As it now stands, the Dollar is on track to make its SECOND and a CONSECUTIVE WEEKLY CLOSE above key resistance at last year's high just above 84.40 or so.

It has already cleared the important 61.8% Fibonacci retracement level of the entire sell off from the double top back in 2010. The last barrier from a Fibonacci retracement theory level it has to face is just above 85 at 85.05. That ties in rather nicely with the upper tine of the pitchfork. If that does not stop the upward march of the Dollar, odds will favor it completely retracing the entire downmove from 2010 and eventually reaching all the way to 89. 

With weakness across the Yen, the Euro and the Aussie and Canadian Dollars, not to mention the Swiss Franc and the British Pound, it is difficult to see why the US Dollar will not make it through the 85 level.

If this does occur, it is going to more than likely bring about additional selling pressure across the commodity sector in general and that means we could very well see more hedge fund shorting activity into silver and gold. It will be up to the physical markets to therefore absorb the paper selling to prevent those recent lows from being retested yet again.

One of the other reasons that the US Dollar is rising in my view is the fact that interest rates are rising here in the US. In an environment starved for yield, you are going to get some of that money that wants to hold bonds moving to where it can obtain the highest yield or at least where it can invest where the interest rate trajectory is higher and not lower as is the case in the Eurozone.

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