Directionless Dollar

Good day to all across the globe. It is now 7:00 AM EST a couple of hours before the NY trading session really kicks into gear. As promised on the previous post here is my tidbit on the currency markets. First I will go over the US Dollar Index. Please click on the chart below and you will have a better idea why I titled this post Directionless Dollar.

The charts in the post do not include last nights trade, the only chart that will be a touch different is the Euro which has moved up around 30 pips or so, everything else looks just about how we finished last week. OK, first I want to explain for those that do not know about the Dollar Index, the Index is composed of a basket of currencies that trade against the US Dollar such as the Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar and the Australian Dollar. The index is on a trade weighted basis with the Euro holding the largest influence. The chart above is a Daily time frame, each bar representing 1 day. We can see that between February and now that the index is trading near 81 at the top and 79 at the bottom, it is currently sitting in the middle of the range just above the 80 level.

Here is what I see going on, please keep in mind I do not have a crystal ball and do not know what will happen on any given day, all we can do is use what has happened in the past and not listen to what we hear from the media, haha. There seems to be lots of confusion with the currency markets, the FED will be done tapering the $85 Billion per month that they were pumping into the US economy for the past year and a half, this ends in October. I for one disagreed last year and thought that all the talk of tapering was nonsense, I just did not believe the FED would be able to pull it off with out disrupting the markets. The markets were expecting a stronger dollar and higher interest rates, which of course you would think would be common sense, perfect example of how, if you want to use common sense when trading these markets, you most likely will not be around very long!

The Dollar as you can see did anything but rise and interest rates did anything but rise. The rate on the 10 Year Note, which I have been mentioning in previous posts, has fallen from a touch above 3% to as low as 2.47% this past month. The Billion Dollar question is if the FED is taking stimulus out, the Stock Market at all time highs here in the US, why is the value of our currency depreciating and interest rates falling? Could it be our massive debt liability that explains the currency value? Could it be that the US can ill afford rising rates because our interest payments on our debt will become problematic or unsustainable?

I could go on and on about the dollar but I would like to finish this post and get to what may or may not drive the markets this week. I am of the opinion, if you do not know by now, that the US Dollar has seen its better days but that does not mean we cannot have rallies from time to time. The only rally I will pay attention to is when the index can actually get above 81 and then move upward to take out 8150. As long as the Dollar Index stays below 81, I will look to sell it.

Here is a quick look at the Euro. Please click the chart to enlarge. I have drawn a line to represent support around the 13575 level and a line representing upside resistance and a mini downtrend line as well. A break above 13660 may see a sustained move towards 138 and a break of 13575 could take the Euro down to test major support at 13480.

Next are the 2 commodity currencies that I always follow very closely. Last week I had commented at how I could see the CAD losing value against the Dollar. I just thought that the latest move it has made against the Dollar was a bit overdone. The Aussie topped the previous week with the help of a little jawboning from the President of the Reserve Bank of Australia. Yes that is a common them in the currency markets, government officials can run to a microphone and move the markets with whatever comes out of their mouth. Speaking of which, Janet Yellen with be testifying in front of Congress tomorrow, I believe traders are anticipating this as the currency markets next biggest event, so pay close attention. I am putting the Cad and Aussie charts together with this thought in mind. As mentioned the 2 currencies are commodity currencies meaning they are growth sensitive. Let's observe how these perform at these levels while the stock market is at record levels, along with falling oil, these 2 currencies may take a tumble if the equity markets do start to falter. We get Chinese 2nd quarter GDP this week and a slew of earnings out of the US. Here is what the Aussie and CAD look like to start the week, let's see what develops in the coming days.

As for the markets currently, Oil is at 100.70, Gold got hit hard early this morning with a drop of almost $25 and is trading at $1319, I would like to see support hold near 1314. If Gold cannot hold here I am afraid we just may see sub 1300 again, be careful. Dow futures did break to the upside and are up 82 points, surprised by this development, it's what happens on most Monday's since 2009! Time for me to go, I wish you all a wonderful Monday!