The $DXY crunch time...

Track back to previous post on US$... as I am unable to post chart in the follow up comments.

As I was saying earlier I see 77.5 to be the real test, and the moment has arrived, if this fails then it will be 75 next and after that the previous low of of 72-73... the question that needs to be pondered is will there be any "rescue" mission kicking off at this level? With the way oil price is reacting to the declining US$, it seems the speculators have every intention of pushing it towards the recent 75 high. That will make many auto owners unhappy especially the Americans and in general the recovering economies that are dependent on oil.

Drawing a long bow, it is highly undesirable to see the US$ dropping back so low, happening almost immediately after the recent US-China summit, with Geithner's assurance of a strong US$ policy to the Chinese - the risk of facing spreading abolishment of the US$ as the preferred trading currency in the face of a runaway depreciating US$ is increasing proportionately to each downward move, with the ultimate potential of neutralising the effect of QE, putting a halt to the the US recovery - with this scenario, there's every reason for the central bankers to act, but will they? And at what level?

...let's watch.

As an observation, the gold stocks in ASX seem to be behaving out of character with the decline in the US$, whilst the gold futures have reacted positively to the movement of the US$, the local gold stocks seem to be moving in an opposite direction or moving side way.

My guess is this could be attributed to the current market big boys' intention of keeping the market buoyant by churning on the index. Of the two big sectors, XMJ and XFJ where most of the big weighty market leaders are residing, XFJ is favoured currently since XMJ has been "played" to its max in the recent rally with BHP reaching its recent high but since the financial side or the real economic side of the company is not actually that flash hot with profit reportedly down by 35% and iron ore sales expected to decline in the next two quarters, etc... the risk of pushing the index higher through the XMJ sector, vis-a-vis BHP and Rio, and holding them at a new high invariably translates to a much higher risk, hence it makes sense to push the XFJ sector.

And in the process, all the gold stocks are getting the ignore treatment too since they are part of the XMJ stocks. But since gold stocks in general have this property of "value preservation" and "defensive" against a declining US$ and/or threat of inflation, my conclusion, or more appropriately suggestion, is to keep an eye on the gold stocks as they are likely to be "favoured" again once the current XFJ sector has done its job and run out of steam...

Stocks such as LGL and NCM seem to have gone through their trimming down and are now sitting on their respective support level, if they hold at the current level, there is a good chance that the next move would be up instead of down to a lower support.

Worth a punt?

Yes, this USD situation is at a critical level considering the talks between China and US still couldn't hold it up.

This is the kind of scenario I was looking towards to have both short USD and equities should it play out.

Economic outlook: Oil prices cloud recovery hopes

** as a follow up to the theme/threat of low US$ "inversing" a higher oil price... now they are calling for attention. But coming from GS? It's like listening to the wolf telling you why it's not a good idea to reduce your lamb production? No matter, still they do talk sense here.

High oil price works like a brake/tax on the recovering economy that's a taken, and so I reckon "they" will do "something" about it. Just watch.

Again I think it is necessary to address the "core issue" here - it's the US$ the root cause of the problem, not the oil price - it is just a "reflective" response to a depreciating US$ and the loose monetary policies among the more advanced countries.

The DXY has been consolidating between its July low of 77.5 and 79.5 for close to 20 days now and yet there's no further breakdown to retest the 77.5 low, with the two recent tests rebounding at a level higher than 77.5 - don't be surprised if the US$ were to break out to the upside... soon!

haunting said:

don't be surprised if the US$ were to break out to the upside... soon!

Click to expand...

Nearly 13 years on, DXY is solidly above it's 100 base, something not seen often since the creation of the index (March 1973) and world currency floats.
My thoughts have been that the current strength is untenable and seems rather "inflated".
I don't know enough about all things markets, but I consider that a hard bumpy landing is possibly inevitable when considering EU and Japan currencies and the timing of this is approaching day by day.

Yet to muse how inflation, recession, stagflation, war, elections, rate raises actually factor in to all this.
Perhaps a few thoughts from the long tooth brigade?

frugal.rock said:

Nearly 13 years on, DXY is solidly above it's 100 base, something not seen often since the creation of the index (March 1973) and world currency floats.
My thoughts have been that the current strength is untenable and seems rather "inflated".
I don't know enough about all things markets, but I consider that a hard bumpy landing is possibly inevitable when considering EU and Japan currencies and the timing of this is approaching day by day.

Yet to muse how inflation, recession, stagflation, war, elections, rate raises actually factor in to all this.
Perhaps a few thoughts from the long tooth brigade?

View attachment 144327

Click to expand...

I have a long term " usd is out " view, but also believe market is not crashed yet..so next US fed rate rise might do the trick, market collapses..usd jumps higher ...and then i sell my usd position before the run to gold...
But i have been so wrong so far with gold and silver it is not funny..
I bought a sizable usd position today after the aud went back toward 70c...but that's probably a sign to sell?
Will check toward end of month if it was a good move