Rising dollar but commodities strengthen

The rising dollar suggests weaker gold and commodity prices. The US Dollar Index continues to test resistance at 83.50. Breakout would target the 2010 high at 88.50, with an interim target of 86*, while respect would test support at 81.50. 63-Day Twiggs Momentum oscillating above zero indicates a strong up-trend.

US Dollar Index

* Target calculation: 82 + ( 82 – 78 ) = 86

Spot Gold continues to test primary support at $1530 per ounce, while 63-day Twiggs Momentum below zero warns of a primary down-trend. Breakout would offer a target of $1300*. QE3, however, would start a new up-trend.

Spot Gold

* Target calculation: 1550 – ( 1800 – 1550 ) = 1300

Spot Silver is similarly testing primary support at $26 per ounce. Failure would offer a target of $16*.

Spot Silver

* Target calculation: 26 – ( 36 – 26 ) = 16

Commodities, and not just crude oil, however, have rallied strongly. 63-Day Twiggs Momentum oscillating below zero indicates a strong down-trend and CRB Commodities Index respect of its descending trendline would warn of a decline to 240*. Penetration above the trendline is unlikely, but would suggest that a bottom is forming.

CRB Commodities Index

* Target calculation: 270 – ( 300 – 270 ) = 240

Brent Crude has already penetrated its descending trendline, suggesting that a bottom is forming, but 63-day Twiggs Momentum continues to indicate a primary down-trend. Recovery of the indicator above zero would strengthen the bull signal, while a peak below zero would signal a primary decline to $75 per barrel*.

Brent Crude and Nymex WTI Light Crude

* Target calculation: 100 – ( 125 – 100 ) = 75

2 Replies to “Rising dollar but commodities strengthen”

  1. Hey Colin – I’ve been a long time subscriber to your newsletter and appreciate your charting analysis. Just had some thoughts on the US Dollar – You mention a rising US dollar but commodities rising as well. As I’m sure you’re aware the US Dollar index is weighted, and weighted heavily to the Euro. So it’s not that the US Dollar is rising…it’s falling in purchasing power too….it’s just that the Euro is falling even faster, which is putting upward pressure on the US Dollar index.

    Have a look at the Aussie dollar, NZ Dollar etc pushing to 3 month highs. Check out the Aussie and NZ dollars making all time record highs against the Euro. Have a look at the big bounce in WTI Crude…a inverse head and shoulders pattern has been completed.

    As for QE3 – we know they have to do QE3. The Fed doesn’t engage in QE to stimulate the economy as they claim. They know the US government is bankrupt and could not service their debt at normal rates of interest. The purpose of QE3 is to continue to suppress interest rates for US government debt. Once they complete operation twist I expect that will “have to” do QE3. This is a terrible thing for American citizens and citizens of the world, and in my opinion will eventually lead to hyperinflation, but for those of us investing in precious metals, commodities and stocks, it will trigger another bull market for the wrong reasons.

    Interested in your thoughts.

    Regards

    1. Good point. Both the US Dollar and the Euro are losing value. It is just that the Euro is falling faster. There were times in the GFC when commodities rose in price as they were seen as a store of value — while currencies were not.

      Remember that the Fed is merely a “front” for the government. When the Fed buys Treasury bonds/notes, it issues fresh new dollar bills (nowadays merely a credit to a digital bank account) in payment. Treasury then uses those dollars to pay for goods or services. The issue and purchase of Treasuries with QE is just a smokescreen. Effectively the government is issuing Treasuries to itself. What is really happening is that the government (via the Fed) is printing new dollar bills and using them to pay its debts.

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