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April 6, 2010

What Dollar Rally?

Raise your hand if you think the dollar has been getting stronger since December. Are you sure? The U.S. Dollar Index is up almost 10%, you say? Well, the DX is nearly 60% weighted toward another currency, the euro, which exists in a similar fetid state of political abuse. How is the buck doing against currencies of countries whose economies depend on the production of real stuff? The largest two examples are Canada and Australia.

Canadian Dollar Chart

Australian Dollar Chart

These relationships, particularly the strong technical setups, suggest the dollar will weaken against commodities in coming weeks, regardless of how the DX itself performs. And exactly how much of the real stuff does the buck buy now versus early December?

Crude oil price chart

gasoline futures prices

copper futures prices

gold price chart

Given the breakouts by commodity-related currencies, I suspect gold will play catch-up... and quickly... once it finishes consolidating. The large basing pattern that began in December and bottomed in February suggests an extension to $1400. I expect the high to be tested in April, followed by another brief consolidation period which will serve to launch the move toward $1400 by early summer.


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