USD$ Reaches Key Support

By: Donald_W_Dony

KEY POINTS
• USD$ hits major support zone. Stability expected until Q1
• Gold reaches second target of $1145, Weakness expected by January
• Oil starts seasonal strength in December. $88-$89 remains next target

• NatGas season ends. Weak economy pins price under $6.00
• Copper breaks through resistance
• Ag grains finally show bullish tones

The prime element that is driving the commodity market during this frail bottoming of the global business cycle is the continual decline of the US dollar. Consumer demand, which is the engine for longer-term price increases, is spotty at best. Pockets of demand are surfacing in Asia (primarily in China and India) but for the most part demand for materials are weak and the rocket under raw material prices is only the big dollar.

On support
The trade weighted currency has seen billions of dollars of value removed since March 2009. From a price of over $0.885 in early 2009 to a low of $0.747 in late November, the greenback has shed nearly 15% (Chart 1). The beneficiary of this waterfall decent has been natural resources. The CRB has bounced from 200 to over 285.

However, after nine months of spillage, the dollar is encountering both technical and central bank support. The broad band that is expected to help prop up the currency is at $0.746 to $0.714. This wide price range had provided a barrier from November 2007 to August 2008 and should offer some technical cushion in the decline now.

To add to the support, an increasing number of central banks are becoming concerned about the recent escalation of their currencies. Asian and Russian banks appear to be stepping in and buying dollars to help stem the decline 9which will help slow the appreciation of their own currencies). Brazil’s and Taiwan’s Finance Ministers have recently gone on record as stating concern for the high level of their currencies and that intervention can be expected.

History shows us that central bank intervention is a large band-aid at best. It is similar to putting up storm shutters in front of a hurricane. Though the windows may have some protection, the roof can still be blown off.

More research is available in the December newsletter. Go to www.technicalspeculator.com and click on member login.

Your comments are always welcomed.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2009 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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