Groundhog Day for the Dollar Again

It's Groundhog Day and the USD is once again giving a wake-up call. AUD popped above parity and the USD is heading into a key support level. Phoenix Capital Research raises the Alert Level with this chart, which shows the mighty Buck once again hitting a key support level:

If it breaks below, and does not quickly come back above (a false break), it raises the awful spectre of a Dollar collapse. The report also sees a possible head & shoulders pattern which suggests a 50% further drop:

Now, H&S patterns are oft seen and seldom realized, because the underlying requirements that need to be met are more than appear in the pattern: 

The EWT recently laid out the theory behind the head & shoulders pattern (EWI makes it available for free, in case you would like to peruse an EWT on point to today). Edwards & Magee's book says that the first shoulder should rise on heavy volume, but the second shoulder should have "decidedly less volume" than either the head or the first shoulder. ... The EWT notes as well that the whole formation should come after an "extensive trend". ... Many purported head & shoulders patterns fail these two tests. The weak volume indicates exhaustion of trend and a coming rotation to the other direction. 

The current weakness is driven by oil dynamics, specifically the risk of spreading turmoil in the Arab world. Oil and the USD are pretty well locked into an inverse relationship (Oil up. Dollar down), although it often is not clear which is the driver. It could be said that after the US went off gold in 1971, it backed the Dollar with an Oil Standard by making a deal with the Saudis in 1973: you trade your oil in Dollars, and we will defend your oil fields. The US gets a great seiniorage benefit from this, as the rest of the word has to maintain high Dollar reserves just to pay for oil. 

Tonight's STU notes that at the intraday low today (DX76.88) the Dollar Index has retraced 78.6% of its prior rise from Nov4 (75.63 on election day!) to Nov30 (81.44), a level that almost always is the extreme for a wave 2 counter-trend move. The percent of Dollar Bulls also fell to 7%, in the range seen at previous bottom (3%-7%) since the April top at 88.71. They expect a rally "now".

The trendline in the first chart stands at 76.08, below this 78% level, suggesting that we may break the 78% level and fall to test the trendline. Wave theory at that point no longer supports a reversal. Watch this development closely. 

Comments

[Wave Rust]

Pittsburgh.

wave rust

[Hockthefarm]

Chab:

"The USA has always supported Israel and whilst Jewish people in the USA hold positions of high office are likely to continue doing so."

I'm actually quite optimistic that this groundswell of change in the ME will lead to a resolution of the Israel/Palestine permawar. I think it will become increasingly clear to Israel that it is in their best interests to do so. It will have to be a very fair resolution, one that most Arab countries can view as fair.

This is where Obama needs to focus. He may just have the skill and inclination to pull it off. No president here has ever had either. I think we need to embrace the change taking place in the ME and get behind it.

Hock

[Hank Wernicki]

The Dollar has a Parent Bottom

BUY THE DX @ 78.18, STOP 77.13 PARENT BOTTOM TARGET 80 +

Cheers

[Hank Wernicki]

Go Steelers !!

[Mamma Boom Boom]

>Obama: U.S. Businesses Have Responsibility To Hire American Workers, Pay Decent Wages<

What an idiot! But, could you expect anything better? I mean, really?

[Chabazite]

Yelnick - 'Februry numbers should help explain Jan.'
----------------------------------------------------
absolutely agree

Hock - 'I'm actually quite optimistic that this groundswell of change in the ME'
--------------------------------------------------------------------------------
I accept that the Israel / Palestine issue is critical, but it is not the only critical issue. In the UK our news coverage is generally accepted to be fair and accurate, and open to all sides of the debate. However, even then it seems to me that a good proportion of our editorial is concerned with 'Muslim extremism' and one could be forgiven for thinking that we are about to enter upon a very uncertain and potentially dark future. From our perspective in the UK the whole Arab world as becoming more extreme, more sectarian and more insular. I read somewhere, for example, that the 9/11 atttacks on the WTC - absolutely deplorable though they were - should not be considered isolated attack against the US, but were an early attempt to drive a wedge between the USA and its close friends in Saudi. I am afraid that US (and lapdog UK's) actions throughout the last decade in Iraq and Afganistan / Pakistan have only exacerbated the situation. I hope that Israel does survive, but with its close ties to an increasingly alienated US I genuinely fear that it will now become the common enemy and uniting factor behind a united Arab states with their own values based in sharia. Obama calls for the early departure of Mubarak in favour of a more democratic regime; seems to me that he needs to be careful what he wishes for because it might not turn out exactly the way he hopes.

[Hockthefarm]

Chab:

I've always found the whole region to be pedagogically abstruse at the best of times. I wish there was a good, unbiased book that would give me a good feel for the area. I've never found one, although admittedly I've never really looked.

That said, I don't really disagree with your assertions. The problem is that so many parts of the ME are on an unsustainable path. Mubarak had 30 years to enact meaningful reform. He did nothing and we let him. Young people finally said fluck it. So the opportunity to enact gradual change from a position of control is gone. Time to roll the dice. The youth of Egypt are not going back to Mubarak(2). Contrast that with a Saudi prince trotted out on CNBC telling the world where he is investing HIS trillions.

The fulcrum is Palestine. If horses were treated half as badly as these people, there would be riots in these parts. Not much of a legacy to build on. It's getting harder and harder to blame someone riding around on a burrow and wearing a Bin Laden tee shirt for the problems. When there are no alternatives, it is pretty easy for the god heads to move in. The masses are going to make the same decisions that you or I would make under similar circumstances.

Hock

[Hockthefarm]

It is going to get interesting:

http://www.nytimes.com/2011/02/07/world/middleeast/07egypt.html?_r=1

Hock