Amid continuing inflationary policy, the US Dollar is at a critical
juncture by both daily and weekly charts. Euro targets 142+ and the Yen approaches our target.
Currency war kicks off; gold just sits there biding time.
From last weeks eLetter:
A Goldilocks atmosphere was expertly
created in large part due to the fact that Operation Twist (yes, we are still
dealing with its effects) by its very definition held long-term interest
rates down (buying long-term T bonds) while sopping up any money supply implications
and inflationary signals by sanitizing the process with the sales of equal
amounts of short-term bonds.
Policy makers have not found a
new way to indefinitely manage the economy. Traditional laws of economics
have not been repealed. The Federal Reserve used the equivalent of a macro
parlor trick to dampen inflation signals and help produce todays Goldilocks atmosphere, which features
stocks rising now that the public and its mainstream money managers feel the
worst is over with respect to the Fiscal Cliff non-event and the Debt Ceiling
But in economics and macro
finance, there is is always a price to be paid for unnatural (read: man-made)
distortions. The Fed ran out of short-term bonds to sell and now something
has to give, as its ongoing inflationary operation is now unsanitized.
A bearish Head & Shoulders
pattern has formed on the currency for which the Fed is supposedly a steward.
If the neckline breaks, the measured target is 76.50.
The weekly chart of USD
targets 74 off of an even more significant H&S, with the baby H&S of
the first chart merely representing the right shoulder of the big daddy
A breakdown in the US dollar
would confirm that the recent tick higher in Adjusted Monetary Base is the
beginning of a new trend up in inflationary policy.
Unsurprisingly, USDs chief rival, the Euro is in an
inverted and bullish H&S. We have been targeting 142 in NFTRH since the break above the neckline. The
Euro appears to be attracting a long
Euro/short Yen and gold
momentum (read: hedge funds) crowd playing the opposite game to that from mid
2011 when Yen and Gold rose strongly in reaction to the Euro crisis.
Yen has been played to the
hilt by the hedgies. We have had 106 as the downside target since the
neckline to the massive H&S broke down. Yen could be a heck of a
contrarian play for a counter trend rally, as the short-covering should be
Meanwhile, the currency that
resides outside the system bides its time. Gold is unofficial money and with
all the hype about currency war people who are not patient may have expected
a rocket launch in the precious metals.
Here we bring it back to the
Euro and realize that too many unhealthy would-be gold bugs came aboard
during the acute phase of the Euro crisis in 2011. That is being worked off
now in golds ongoing
US dollar looks bearish. Euro
looks to complete its rally to 142+ where it will by the way, encounter a
bigger picture DOWN trend line. Yen is bearish but due for a whale of a
short-covering bounce soon.
In the near-term some
currencies are bullish and some are bearish. But the US Fed, Europes ECB and the BOJ are not going to
engineer their way out of their respective inflate-or-die predicaments. Gold may have a few more
months of correction/consolidation but that is a drop in the bucket when
viewing its entire history as a monetary anchor to value.