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The U.S. Dollar Has A Problem!

 December 06, 2012 03:18 PM


There's a lot of analysis floating around Wall Street and the financial media regarding what's in store for the U.S. dollar.  The analysis is based on trying to guess what can be expected from central banks in Europe and the U.S., what will happen with the euro-zone crisis, the fiscal cliff in the U.S., inflation, and so on.

As would be expected with so many variables, the opinions are all over the lot.

Let's see what the charts and technical indicators are saying.

They ignore what's going on in the background, are not even aware of it. They simply identify potential support and resistance levels, measure internal strength and momentum, and tell us whether money flow has reversed, not really caring who is doing the buying or selling, or why.

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The dollar, although volatile, had been in rally mode since early 2011.

Each of its pullbacks within the rally found support at its important 30-week m.a., until this one, in which it broke beneath that support.

It has been rallying back since October. However, upon reaching its 30-week m.a. it has pulled back again, indicating that the 30-week m.a., which was previous support, has now potentially become overhead resistance, as it usually does in the dollar's serious corrections.

Since the strength or weakness of the dollar has an impact on other asset classes besides just currencies, traders and investors would do well to keep an eye on the situation.

The following is a longer-term chart showing the importance of the 30-week m.a. on the dollar. We've been using it (along with technical indicators) for 25 years as one tool in timing the dollar, gold, and other assets.

Note that whether the dollar is in a bull market or bear market, an intermediate-term rally or correction, it moves only so far from the m.a., before returning to it to retest the support or resistance at the m.a.

Even though its bull markets are destined to continue, once its gets overbought above the m.a. it repeatedly pulls back to it before the upside resumes. Similarly, in its corrections, it repeatedly rallies back up to the m.a., before the downside resumes. (This long-term chart is just to illustrate the importance of the m.a. The usefulness of the m.a. comes into play on intermediate-term charts, when combined with technical indicators).

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Yesterday in the U.S. Market.

An odd day of divergences between the major indexes. Trading volume picked up to 0.76 billion shares traded on the NYSE.

The Dow closed up 82 points, or 0.6%. The S&P 500 gave up early gains to close up only 0.2%. The NYSE Composite closed up 0.5%. The Nasdaq closed down 0.8%. The Nasdaq 100 closed down 1.1%. The Russell 2000 closed down 0.2%. The DJ Transportation Avg. closed up 0.9%. The DJ Utilities Avg closed up 1.4%.

Gold closed down $3 an ounce to $1,693.

Oil closed down $.62 a barrel at $87.88 a barrel.

The U.S. dollar etf UUP closed up 0.2%.

The U.S. Treasury bond etf TLT closed down 0.1%.

Yesterday in European Markets.

European markets were mostly up yesterday. The London FTSE closed up 0.4%. The German DAX closed up 0.3%. France's CAC closed up 0.3%. Greece closed up 1.1%. Ireland closed up 0.5%. Italy closed down 0.5%. Spain closed down 0.2%. Russia closed up 2.3%.

Asian Markets were up Tuesday night and mixed last night .

The Asia Dow closed up 0.7% Tuesday night, and up 0.3% last night.

Among individual markets last night:

Australia closed down 0.3%. China closed down 0.1%. Hong Kong closed down 0.1%. India closed up 0.5%. Indonesia closed up 0.1%. Japan closed up 0.8%. Malaysia closed unchanged. New Zealand closed up 0.4%. South Korea closed up 0.1%. Singapore closed up 0.1%. Taiwan closed down 0.3%. Thailand closed up 0.7%.

Markets This Morning:

European markets are up this morning. The London FTSE is up 0.3%. The German DAX is up 0.9%. France's CAC is up 0.1%. Spain is up 0.1%. Greece is up 1.9%. Italy is down 1.0%.

Oil is plunging $1.58 a barrel at $86.30.

Gold is down $6 an ounce at $1,687.

This Morning in the U.S. Market:

This week will be a fairly heavy week for potential market-moving economic reports, including the ISM Mfg Index, Auto Sales, ADP Jobs Report, Factory Orders, and the ‘big one', the Labor Dept's Employment Report for November. To see the full list click here, and look at the left side of the page it takes you to.

Monday's reports were that the ISM Mfg Index unexpectedly fell from 51.7 in October to 49.5 in November, its lowest level since the last recession ended July, 2009. The consensus estimate was that it would remain at 51.7. The day's other report was that Construction Spending was up 1.4% in October, better than the consensus forecast of an increase of 0.5%.

There were no reports of any consequence on Tuesday.

Yesterday's reports were that Factory Orders were up 0.8% in October, much stronger than the consensus forecast of a decline of 0.1%. The ISM Services Index ticked up to 54.7 in November, from 54.2 in October, much better than the consensus forecast of a decline to 53.0. 3rd quarter Productivity was revised to an increase of 2.9% from the initial reading of 1.9%. And the ADP Jobs Report was that 118,000 new jobs were created in the private sector in November, just shy of the consensus estimate of 125,000.

This morning's reports are that new weekly unemployment claims fell by 25,000 last week, but the 4-week m.a. was up 2,250 at 408,000.

The report has had little impact on the flat pre-open indicators.

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