Monday, 2 July 2012

Dollar...bull flag on the weekly

Another week looms, a holiday week for the US (market is closed Wednesday), but that probably won't mean any fewer EU rumours/news across the wires.

What will be interesting is where we end the week. We have the monthly jobs data, and I'd expect that to show yet further weakness in the underlying US economy. Market is looking for 90k gains, my best guess, 25/30k. That would probably be enough to give everyone a scare, but then the 'ohh, that means QE3 is coming' crowd will doubtless start their nonsense talk again.

What IS clear to me..the Bernanke can't be doing QE3 whilst Mr Market is at these lofty levels.

Anyway, lets take a quick look at the Dollar...

Dollar, weekly

Dollar, monthly


Across the next two trading weeks it will be vital for the Dollar to hold the DXY 80.00 level. Not only will it be the lower channel of the bull flag, but it is obviously a huge psychological level.

So, if $ holds 80.0 - despite any further index gains to sp1390/1400, then bears are still in with a hope that this nonsense market will fail to break new highs.

The contrary outlook of course, if SP>1422, then bulls should be looking for dollar weakness. It is not essential to a market rally, but it is usually the case.

Long term 'break' levels

Across the grander scale, you can see the ultimate level to break above would be 87.50 or so, or conversely 71.33 to the downside. Naturally, the 'fate' of the EU will probably be the determining factor in that. If the EU can agree to Euro-bonds before the end of this year, then I'd expect the dollar to level out from its current 15% rally since spring 2011.

If on the other hand the EU splinters, I'd expect dollar to soar. Worse case...Germany pre-emptively quits the Euro, leaving the PIIGS to pay their own bills! That would make for one scary time in the world capital markets, and huge economic shockwaves would occur.

Looking ahead

Futures are marginally lower, dow -15, as I post this, its all 'noise' so far, I'd dare say again.

As noted earlier, we do have econ-data every trading day this week, so there will be more data for the economists and longer term traders to be mindful of.

Good wishes for the week ahead!

Goodnight from London