Archive for November, 2009

The U.S. Dollar Index (DXY) Edges Closer To Major Support

Posted in U.S. Dollar Index (DXY) on November 29th, 2009 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

While deemed one of the most “crowded” trades currently on investor’s books, the popularity of being short the U.S. dollar, or the dollar index (DXY) may have been tempered slightly following the news surrounding Dubai’s debt problems over the Thanksgiving holiday. With oversold conditions currently present, some observers have been on the alert for an exogenous event to possibly trigger a “run to safety” trade into the dollar and, in turn, causing a spirited “short-covering” greenback rally.

Worries over the exposure to Dubai’s debt that a number of global lenders have was just another reminder of the residual credit “risks” that could cause havoc in the global marketplace. An unexpected rally in the dollar, of course, would likely result in bearish corrections in both commodity and equity prices.

From a technical point-of-view, the dollar index (DXY) is edging ever closer to a cluster of support near the 73.50 area that should define its direction over the intermediate-term. Elliott-wave analysis alone, suggests that the bearish run in the dollar is likely approaching a conclusion.

With that said, a solid break below 73.50 on the DXY would be a troubling situation for central bankers and the balance of trade internationally. China’s currency remains largely pegged to the greenback which would make both U.S. and Chinese exports look more and more attractive to global consumers at the expense of European and Japanese products and services. That is another issue.

For the time being, key a close eye on the 73.50 level on the DXY.


Another Way To View The Upside Potential Of The CRB Index

Posted in CRB Total Return Index (CRB) on November 22nd, 2009 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

On October 11th, we observed that a possible bullish “cup & handle” pattern that targeted a move up to the 343 area was developing on the CRB Index of commodity prices. A “break” above key “neckline resistance at the 268 level was needed to verify this pattern’s validity, and that occurred on October 14th.

Supplementing the notion for a solid extension higher in commodity prices can be helped by looking at monthly bar charts. When looking at the monthly time frame, the CRB index broke above key “cross” trend line resistance at the 265 level on October 12th with long-term technical oscillators signaling “buy”.

Important to note, however, was that an upward sloping trend line dating back to the CRB Index’s 182 low of November 30, 2001 held as support until October 7, 2008 as liquidations of many asset classes ensued following the collapse of Lehman Brothers. It is now interesting to observe that the “backside” of that former support line now sits as resistance coincidentally at the 343 level (and rises gradually over time).

With the relationship between commodity prices and the S&P 500 index still apparently in effect, a rise in commodity prices should be positive for equity prices. One reason for continuation of this relationship is that a rise in commodity prices points to a global economic recovery with the demand increasing for raw materials, both hard and soft. Another reason is that the U.S. dollar will likely continue its bearish trend for a bit longer. If that assessment is accurate, U.S.  companies should benefit by having competitive pricing power for goods and services, thus helping their bottom lines.

In any event, commodity prices and the CRB Index appear to hold a bullish bias with much more upside yet to unfold.