Tuesday, July 17, 2007

US Dollar -- One UGLY Duckling

I was going to post about the US Dollar today, but Clive Maund's piece posted on Kitco yesterday says everything for me: http://www.kitco.com/ind/maund/jul162007.html

Our tactics are now clear - watch for a weak countertrend rally in the dollar over the short-term, meaning over the next week or maybe two, that will probably result in a reaction in the Precious Metals and PM stocks, which there is certainly scope for technically after the significant rally of the past several weeks, and use it as an opportunity to load up across the board in gold and silver and Precious Metals stocks. The latest COT figures are suggesting a short-term reaction is likely. This will probably be the last chance to take positions at favorable prices before the anticipated major uptrend gets underway.

I agree. I've posted a chart above of the Dollars recent foibles. Clearly it is oversold. Add to that the rising bashing of it in the media and we have all the makings of a rally in the Dollar. I know, nobody should be buying the Dollar. But we all know nothing goes straight up, or straight down.

A Fibonacci Retracement of the Dollars recent nose dive pretty much cues us into a temporary bottom in the Dollar here. And a mini-rally up to 38% in the 81.50 area would be probable. Will we get that kind of action is another story. The Dollar is woeful at best, and this morning we have June PPI numbers. My suspicion is that the holy "core inflation" may shock people today. Costs of energy and raw materials have been steadily rising now...for most of the second quarter in fact. These costs eventually have to begin to show up in the cost to manufacture goods, which is what PPI measures. Rising producer costs are going to further pressure corporate profits. A lot of hot air may be about to escape the Stock Market Indexes.

Of course were this scenario in the PPI to play out today it's not likely the Dollar will begin a rally anytime soon. But should the Dollar move higher from here and pressure Precious Metals, remain vigilant as any reaction in the metals here should be brief...and an excellent opportunity to "load the boat" if you haven't already.

Gold and Silver are wrestling with support this morning as the world sits on pins and needles awaiting the PPI report. I've included an hourly chart of Gold covering our run up of the low earlier this month. Consolidation looks to be the name of the game for the past couple trading days. 664 support are is where we're at now with what should be solid support around 658. I still maintain that based on the daily charts, surprise moves in Gold, and Silver, remain to the upside.

Silver, always a basket case appears to be holding it's own here at this hour around 12.90. Solid support below at 12.78. Silver will take it's cue from Oil, and Oil looks strong again today trading at 74.68 + .53 as I type this.

PPI coming up within the half hour. "Core" consensus is 0.2%. It would not shock me if it came in double that at 0.4%. It would certainly shock Wall Street. I'm giddy with anticipation.

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