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Investors
and traders just can't seem to catch a break when it comes to economic news.
For example Tuesday in the United States we saw strong ISM manufacturing
numbers which surprised the market. The numbers were way above expectations
and it triggered a feeding frenzy in US based investments like stocks and the
green back.
The following session Italy reported
terrible PMI and unemployment rate numbers which took most of the wind out
the European and US stocks. One day the data is great, next day it's bad...
The strong numbers in the US have
everyone including myself thinking that this week's jobless claims
(unemployment rate) will be down. If this is the case then we will see stocks
jump along with the dollar, much like what we saw trader do last Tuesday which
is what Jim Cramer says best - BUY BUY BUY.
Normally we do not see the dollar
index rally along with stocks but if EU continues to show signs of weakness
then it is very likely the dollar and equities inverse relationship could
decouple. Reason being investors around the globe will focus their money on
the more stable US investments like the dollar and US stocks.
You can learn how
to trade economic news with my free Economic Indicator Trading Tool: http://www.thetechnicaltraders.com/economic-indicators.pdf
The Dollar is Trading at a Major Tipping Point -
Weekly Chart
The dollar index is something that I
watch very closely on a daily basis. Focusing on the weekly and 8 hour charts
I look for support and resistance levels along with price patterns.
As you can see from the weekly dollar
chart below, a large bull flag has formed. This pattern typically means
higher prices and in this case the price target is between the 86 and 88 level.
There are few wild cards to toss into
the game on what will unfold next:
- Currency
manipulation seems to be strong and if the US wants a low dollar value
then it's likely it will stay low. This bodes well for stocks and
commodities.
- Depending
on what happens and how things unfold in Euro-land the dollar/stock
relationship could decouple meaning they could start to rise together.
If we get neutral economic data out of the EU and positive data out of
the US it will likely boost the value of stocks and the dollar. But
strong negative data out of the EU will more than likely just sent the
dollar higher and spooking investors and triggering a selloff in stock
prices.
 
Dollar Index 4 Hour Chart
I find the dollar index to be a great
trading tool in helping me time short term reversals in the equities market.
Taking a look at the 8 hour chart
below you can see recurring bullish falling wedge patterns. The most recent
brake out was this week and I anticipate the 79.50+ levels to be reached in
the near term. If the dollar does continue to move higher then I expect
sideways to lower stock prices for a couple more sessions.
That being said, the mixed economic
data between the US and EU is going to cause this scenario to be
unpredictable. Depending on the jobless claims this week stocks could
actually rally while the dollar moves higher. Unfortunately, this week's
mixed data does not provide any trading opportunities that I feel comfortable
making.
Mid-Week Market Conclusion:
In short, I feel a higher dollar is
likely to happen. As for stock prices, well they are more of a wild card at
this time but my analysis slightly favors higher prices.
To quickly touch on precious metals,
they are likely to be under pressure for a few sessions simply because of the
rising dollar.
I hope my analysis helps paint a
picture of what to expect in the coming days.
Happy Trading,
Chris Vermeulen
Editor, the
Gold and Oil Guy
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