The dollar’s recent bounce looks to be over at least for now and long-term weakness is back on track with the dollar being lower against most of the major currencies. Stocks also continue to look weak but the long term trends are still intact and these are currently up for stocks, mixed for commodities and down for the dollar.
The S&P 500 began the week well, including a break above the downward sloping trend line that we wrote about last week but then Wednesday saw major selling and this took the market back below the trendline and even below 1300. This was a fifth straight down week for the S&P 500. We wrote last week that the market is forming lower highs and lower lows, which is a bear market set up and that trend has continued this week with stocks beginning to look bearish. We may now see a continuation lower to test 1290. If support there gives way then there is little to stop a decline all the way to the March lows around 1240.
As we also wrote last week, we are now into a seasonally weak period for stocks and June brings an end to the best 8 months of the year for the Nasdaq. So far that seasonal weakness is playing out and we may see the Nasdaq decline further towards 2250.
The long-term trend remains up for all of the indexes that we trade at LS Trader with the exception of the Nikkei, which continues to be the weakest of the indexes and the most likely to give a sell signal.
The long-term trendline that has been supporting Gold is still holding and currently dissects the market at around $1500. The past week has seen Gold hit $1550 again and reach its highest level in 4 weeks with the long-term trend remaining up and bullish. If the market can push up above $1550 there is little in the chart to suggest that the market won’t continue higher to test all time highs, currently at $1577.7 on the August contract.
Considering the weakness of the dollar, one would probably expect Crude to be faring better than it currently is. Friday saw the August contract close narrowly above $100. As before, a glance at the daily charts shows a large number of long lower shadows on the daily candles over the past few weeks and this continues to show that support is in for the market around the $96 level. If the market were eventually to break below that level it could lead to strong selling bit for now the trend remains up.
A third straight week of declines has been seen for the dollar index and we may now see a move lower to test the March lows. The dollar normally enjoys safe have status and an inverse relationship with stocks so recent stock index declines should in theory have benefited the dollar. However, we have been writing here for quite some time that the dollar is enjoying less of a safe haven status than it used to, primarily because of the increasing awareness of the extreme flaws of the current reserve currency, a status that may be under serious threat over the coming years.
With US debt levels soaring out of control and the US heading for the debt limit threshold they will either have to default on their loans or continue to debase their currency as they have for the past few years. With Friday’s job number coming in well below expectation, QE3 is very much on the cards and this would spell further dollar weakness.
As we have been writing recently, both the Swiss Franc and the New Zealand dollar continue to fare better than the other major currencies with both of these markets hitting all time highs this week. It would appear to be only a matter of time before the other major currencies join the party and resume their long-term up-trends. The only likely spanner in the works for this scenario will be further weakness for stocks, which may lead to some dollar buying.This week is quarterly forex expiration so the June contract rolls forward to September.
Interest rate futures
Interest rate futures continue to climb gradually as yields continue to fall to new lows for the year, leading prices to their highest level since November. The November highs will be the next target for this sector. The long-term trend remains up across the sector.