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There's
no way to deny the importance of today's surge in the U.S. Dollar index.
After staging a surprise rally in the first half of 2005, the Greenback has
been struggling for over four months at the 90 level, but today's surge
through 91 suggests that battle with that resistance has been won by the
Dollar bulls, especially if the index can close above that level.
In the
3-year chart of the Dollar index below, one can easily see the resistance
that the 88-90 level has posed, resistance that formed through the large
portion of 2004:
I
myself even wrote a commentary in July titled "Commodity
Currencies to be Less Exciting in Second Half" based
in part on this very visible level of resistance; in retrospect, I should
have suggested that currencies would be less than inspiring for most
of the 2nd half since today's action suggests another up-leg for the Dollar
is likely upon us.
Typically,
a technical breakout like this one would lead me to believe that we'd see
that asset spurt quickly higher, then perhaps pullback to the breakout level,
consolidating the quick surge in preparation for a more sustained move
higher. This year, however, has been murder on breakout traders, with such
spikes often acting as points of exhaustion so a furious, ultra-short term
move into the mid-90's may not materialize. However, the longer-term plus for
Dollar bulls is that the very resistance level that posed such a challenge
recently should now act as powerful support, acting to contain any pullbacks
in our currency from here.
Upon
its first failure at the 90 level this Summer, the most vociferous Dollar
perma-bears were quick to declare the Dollar's "counter-rally" dead
based on the charts (though most aren't technicians, they'll point to charts
as evidence when an obvious pattern emerges that they feel verifies their
thinking). This move, however, will be much harder to explain away based on
the charts. I also suspect that it's going to become increasingly difficult
for the most vocal anti-Dollar extremists to sell their "Dollar
collapse' and "end of American empire' nonsense as we head into 2006.
Chip
Hanlon
President, Delta Global Advisors, Inc.
19051 Goldenwest,
#106-116 Huntington Beach, CA 92648 Phone: 800-485-1220
Fax: 800-485-1225 www.deltaga.com
A widely-followed
market commentator, Mr. Hanlon served as the C.O.O at Euro Pacific Capital
prior to taking the reigns at Delta Global. He had previously been the
President of Unfunds, Inc. and spent 7 years prior with Sutro & Company
as a Vice President and the company's Los Angeles Director of Syndicate
Offerings.
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