CTS Spotlight for the week of January 07, 2011

Hello and welcome back to CRI's CTS Spotlight

01/07/11: Could 2011 see much of the late 2010 commodity rally taken back? So far, it appears that way. The first two weeks of every quarter are often a good indication of what to expect for the remainder. News of no new bank bailouts from the ECB means status quo which means more European debt worries which means 'the crisis' is still very much on. Considering the dramatic moves higher seen of late (Copper alone up more than 65% since June's lows), a period of consolidation while the Germans squeeze their fiscally incompetent ECB partners seems not only realistic but maybe even a little necessary too.

US Dollar / Euro / Jap Yen Analysis

Recently, CRI wrote a CTS Spotlight on the Japaneses Yen, the Nikkei and the US dollar Index. (Nov. 14th) in-which it was concluded that the Yen had indeed moved up quite a bit vs. the dollar and one ought to consider a correction in the not too distant future. Since Japaneses stocks have again broken out higher (suggesting the Yen may indeed come down more versus the US dollar) I thought this week we would take another look at the major currencies to see if opinions ought to be changed.

So lets start off with the greenback.  The US dollar index has put in a bottom formation with the recent close back above the 81 area. A trade above the early Dec. highs would confirm a tight bull flag formation [roughly (82-75)+79 =86]. This is supported by the monthly chart which suggests the recent price channel resistance is currently in the 87 to 88 area.

Moving on to the Euro. Here is where I think most of the US dollar will get its strength from. Recent comments reiterating the 'no bailout' theme in Euro land suggest that the credit crisis will continue for some time to come. This shall be detrimental to most markets but interestingly, the German stock market is dramatically overextended and could really use a period of consolidation. Maybe German bankers/politicians see this and are creating this short term crisis to effect the cleanup. The market just flashed a sell signal (moving through the significant lows near 1.30) and looking at the monthly chart it would appear there is very little supporting this market until we get back below 1.20!

Lastly the Yen. As previously noted, there is a lot of room for the Yen to come down. Indeed, one could argue for at least a 10% correction here just to get back into monthly support. Unlike the Euro though, the Yen has NOT broken down yet. While I would be interested in shorting the Yen to capture some of this over extension, I must wait for the signal so here we shall hurry up and wait...
 
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com