How is the US dollar index doing in market timing terms? It is weak but still clinging to a ledge just above 75.63, which will be the critical break point if this rally is washed down the ravine into oblivion. The Euro is somewhat cooperating by staying below 1.42.81, a prior high. The Japanese yen has been cooperating by selling off a bit more every few days.
It is not in anyone’s interest now to have the US dollar collapse. It could do that or slowly grind downward as we saw in US stocks in 2008 – i.e., a multi-day controlled crash could happen. A new high in gold could trigger such a prolonged further crash of the US dollar. A close of the dollar index at lows below the 2008 low of 70.70 would do that too. What that last point indicates is that the market could allow the dollar to slide down to 70.70 which is 6.5% below the 75.63 breakpoint – that is a mile away for currency traders!
But I would not bet on a break of 75.63 personally. Europe is still a mess. The Yen is being manipulated as publicly announced by the world powers. We will scale out of our long dollar trade on a close below that number however. Stupid is as stupid does, and I do not intend on being stupid. Not deliberately.
The dollar, by “hanging in there,” has continued to pressure gold, and I expect the gold ETF GLD to close today back below 139.54 or end up there sooner than we see a new GLD high. If we do get a breakout in the GLD gold ETF (IAU is another investment vehicle; less liquid at present), my subscribers will be buying and will likely kiss the long dollar position goodbye, because I would guess that the US dollar index will close back below 75.63 if gold breaks out to new highs.
A very strong US dollar rally could pressure stocks, and that is why I keep an eye on it every day for my subscribers.
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© 2011 David B. Durand, M.D. All rights reserved.