09/24/10: The US Dollar Index has broken down in earnest as the Euro has finally bottomed. Stocks and commodities are moving higher aggressively within the vacuum that seems to be persisting ahead of the mid-term US congressional elections expected this November. In a similar fashion to the 2008 elections the market is moving into the event. Unfortunately this may mean that once the event has happened many of the currently trending markets may reverse. Having said that, 'make hay while the sun is shining' seems an appropriate stance. Grains, metals and softs are all moving higher so enjoy the ride while it lasts or just be short the US dollar index. Either way, there is money to be made.
US Dollar Index
The US dollar index has been in a significant trend channel between the Bush lows (70.80 fr March 2008) and the Obama reaction highs (89.71 March 2009) for the past three years. Typically Democrat US governments are US dollar bullish. Indeed, since the transition the US dollar has done better. The problem for the bulls, we are currently within a 17.5 year US dollar bear cycle in which we are about 10 years in. This means we should be expecting the US dollar to be heading lower for at least another 5 years but probably closer to 7.
Given the fact that the Republicans are threatening to take back control of Congress this November, it shouldn't surprise to see the market price that potential event into the marketplace. If the currently weekly breakdown is indeed correct, one ought to expect this tentative uptrend line (refer to monthly chart on right) to be tested in earnest.
From a global growth perspective, If the world is feeling like the credit crunch of just a few years ago is over, then one can make the argument for stronger world currencies vs. the greenback and higher commodity prices (which would be exacerbated by a falling US dollar as well).
Regardless of your macro perspective one should either be long commodities or short the US dollar on this major breakdown. The metals have been pointing higher for some time here. Similarly, grain prices and soft prices are moving higher in earnest as well. Lastly, stocks themselves are pointing higher too. There is a lot to choose from so enjoy the rally while it lasts.
Once on the other side of the election.....all bets are off!!!
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com
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