Archive for November, 2010

Dollar Index Rises On Run-To-Safety Fears

Posted in U.S. Dollar Index (DXY) on November 29th, 2010 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Heightened military tensions between North and South Korea, renewed worries over the debt crisis in Europe along with continued concerns over the Fed’s QE2 policy helped the U.S. Dollar Index (DXY) find its footing and reverse higher over the past few weeks.

Technically, oversold conditions on weekly charts, along with a successful test of key trend line support at 75.65 also helped the dollar reverse higher. With plenty of upside room to go technically, it is worth noting that key trend line resistance on DXY does not come into play until the 86.75 area over the next few months.

A potential move up to that area, if it were to occur, would likely put a damper on this year’s commodity rally (at least in dollar terms) and curb near-term gains in equity prices. While renewed strength in the dollar index could benefit the greenback over the longer run, a near-term “risk off” investor stance could cause equities to retreat over the short-run, particularly with year-end window dressing and tax gain or loss strategies kicking in.

In any event, the dollar index is poised for a solid extension higher, which is likely to leave equity investors less bullish that they have been recently.

Commodity Index Hits A “Speed Bump”

Posted in CRB Total Return Index (CRB) on November 22nd, 2010 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Although the Federal Reserve’s “quantitative easing part 2” initiative has just started, a strange thing happened along the way to asset reflation. Equity prices fell, bond yields rose and the Reuters/Jefferies CRB Total Return Index (CRB) hit key “cross” trend line resistance and reversed lower. Throwing a small monkey wrench into the process was a 50bps increase in bank reserve ratios by the Peoples Bank of Chinese in order to curb rising inflation there; and renewed worries over Ireland’s ability to shore up its financial troubles and avoid an eventual restructuring of its debt.

Both circumstances, as well as growing criticism of the Fed’s new QE2 program along with frustrating uncertainty over the extension of the “Bush Tax Cuts”, gave traders reason to pause over the past couple of weeks.

From a technical point-of-view, the CRB hit key trend line resistance at 320.38. With overbought conditions present on weekly bar charts, a small “gap” remains “open” at the 317.50 level on daily bar charts. That “gap” could get “filled” over the next few sessions if the markets find a modicum of stability. That said, a move up to the 317.50 area may prove to be an opportunity to lighten up on commodity “long positions” and book profits before year’s end. A period of consolidation lower over the intermediate term would help bring into balance a market that may have gotten a little ahead of itself. It might also provide an opportunity for investors to see how China, the Eurozone and the freshman class of the U.S. Congress respond to both political and financial pressures during the winter months.