Thursday, May 21, 2009

Day of reckoning looms for the U.S. dollar

The U.S. dollar's day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks - debt and inflation - are brought under a harsher spotlight.

Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a "serious case of dollar damage" was underway.

"We long warned about the day of reckoning for the dollar emerging at the next economic recovery," Mr. Laidi said in a note.

Mr. Laidi said economic recovery would weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies. This would draw investment away from the U.S. dollar, which was dragged down by growing debt and the risk quantitative easing would eventually spark a surge in inflation. (more)

Hourly Action In Gold From Trader Dan

Posted By Dan Norcini On May 21, 2009 @ 2:10 pm In Trader Dan Norcini |
Dear CIGAs,

It was a very volatile day in the markets today with the gold, Forex, and bond markets making big swings. The Bond market in particular utterly collapsed during the session as looming supply fears rattled bond bulls even as equities dissolved. As the bonds dropped through support, the Dollar was smashed lower and gold catapulted higher forcing a wave of short covering and attracting more new buying. That momentum took it easily through yesterday’s session high with price also besting round number psychological resistance at $950. The move is most impressive and the charts are showing an acceleration higher which is coming out of a period of grinding consolidation. I have noted that the RSI is also confirming the upward move with that indicator finally bettering horizontal resistance drawn off the last swing high.

Volume in yesterday’s breach of resistance at $930 was very high and accompanied by a strong surge in open interest. Both are technically bullish, especially the volume reading. Today’s session is showing good volume as well which is serving to confirm the upward thrust. Traders are slowly beginning to roll out of June and into the August contract ahead of the delivery period.

The weekly charts of the HUI and the XAU both look very strong technically. The HUI has finally bested the difficult 50% retracement level drawn off the March 2008 peak near 520 and the October 2009 low near 150. It has had trouble with that level since the beginning of this year so yesterday’s achievement is very significant. It now has a clear shot at the 61.8% retracement level that comes in near the 379 level. If it can conquer that, technically it will be in position to make a run to near the 455-460 level. Most importantly from a trending perspective, the HUI took out the 100 week moving average yesterday which came in near the 359 level. That is no small feat. All of the major moving averages on the weekly chart are either moving upwards or are getting ready to turn higher. (more)

US Treasury Bond Bubble

The bear market in Treasuries will worsen, because of a glut of government bonds. Instead, consider high-yielding mortgage securities and certain munis. (Video)

We're talking about U.S. Treasury securities, not housing. At the end of 2008, risk-averse investors poured into Treasuries, driving down yields to the lowest levels in decades. The 30-year Treasury bond fetched less than 3%, and short-term T-bills carried yields of zero.
Marc Burckhardt

Since then, the economy has shown signs of bottoming, the credit markets are functioning more normally, and the stock market has roared back from its March lows. Treasuries now are in a bear market, while bullish enthusiasm has taken hold in other parts of the credit market, including corporate bonds, municipals and mortgage securities, all of which had fallen from favor late last year. The 30-year Treasury, for instance, has risen to a yield of 4.10% from 2.82% at the end of 2008, cutting its price by 20%. (more)

Wall Street Unspun With Peter Schiff

Jim Rogers on Lew Rockwell, Obama Will Devastate Economy.

Jim Rogers on Lew Rockwell, Obama Will Devastate Economy.

Jim Rogers Likes Gold and Silver

Is the US-Dollar Headed for a Mighty Crash?

Each month, the US Treasury publishes its International Capital account, (TIC) which foreign currency traders and bond dealers use to gauge the flows of money from around the world, into and out-of the US-capital markets. The demand for a nation's bonds and stocks, combined with international trade flows for goods and services, plus behind the scenes intervention by central banks, all act in concert to influence the foreign exchange market which handles $4-trillion per day.

A surplus in TIC inflows is generally seen as a positive for the US-dollar, because it signals that foreigners are willing to increase their holdings of US-securities, displaying greater confidence in the currency. On the other hand, a TIC deficit is generally interpreted as bearish for the US-dollar, because it means that foreign inflows into the US aren't sufficient enough to fund government borrowing.

The release of the TIC report often sparks a flurry of trading activity in the foreign exchange market, due to speculators seeking to earn a fast profit. However, the initial knee-jerk reaction to the news headlines, can be very misleading, and often isn't long-lasting. For instance, the US-Dollar Index, measured against a basket of six-currencies, defied conventional logic in February, by climbing +2.7% higher, even in the face of a net outflow of $91-billion in the TIC account. (more)