Tuesday, 29 January 2013

Dollar weakness into the Spring

A quiet start to the week in market land. The US Dollar index closed fractionally higher, +0.04% @ 79.78. The daily cycle offers moderate near term upside to the 80.60 level. The USD 81s look somewhat unlikely, with the mid-term looking particularly weak.

USD, daily

USD, weekly

USD, monthly2, rainbow


The weekly USD chart continues to offer a very clear H/S formation. If correct, it would allow for very moderate near term upside, but more general downside into the spring. The downside target is 77.0. If that fails to hold, the monthly charts would offer 75/74 by late April/early May.

Despite continued QE for the foreseeable future, I do not expect a break under the April' 2008 low of 71.33. The USD sure is a very dirty bit of FIAT paper, but there are way more nasty ones out there, not least the Japanese Yen, whose bond market might be the first to implode in the next year or two.

Dollar weakness and the equity bears

As is often the case, if the dollar weakens to the 77s, and certainly if it declines to the 75/74 zone this spring,  it would really help prop up the equity/commodity market- even if there is some mainstream concern over the debt ceiling, and renewed fiscal cliff issue.

If the H/S formation does play out - with significant dollar weakness, the equity bears will have a real tough time for at least a few more months. Sp'1520/30 in March seems viable, if not even higher, in the 1550/70s.

Looking ahead

I have some hope that Tuesday will see more dynamic price action. We've not seen a decent move in the equity indexes since the snap higher at the start of the year. This algo-bot melt is really tiresome, as I think many (not least the bears) would agree.

Those bears seeking an index retracement should remain focused on the VIX, where a Tue/Wed close in the 14/15s should be the first target. Whether the final exhaustion spike is to VIX 16 or18, that is the big unknown in my view.

Wednesday will be the best chance of a major bearish snap lower, with GDP, ADP jobs data, and the FOMC press release/statement.

Goodnight from London