USD - WHERE TO NEXT ?

Here is a USD update from Graham Summers of Gains Pains & Capital.com

April 25, 2011: Graham Summers’ Free Weekly Market Forecast (China Dumping Dollars edition)

His analysis is always insightful and he is always willing to tell it like it is.

The USD has clearly been under pressure recently. It is oversold at the moment and even though the Bullish Bear has a long term bearish view on the USD, I continue to believe that the current rally in the EURO and the GBP will soon see a reversal.

The Euro and the GBP have their own issues as well! ...facts that the market is currently ignoring!

Will the USD take out the 2008 lows? Watch this space!

Gold and Silver have had a fantastic run, although Silver prices pulled back quite sharply this week after almost reaching $50.

As you can see from the third chart, Silver had a lot of catching up to do, and since mid 2010, it has caught up with Gold quite swiftly.

I continue to advise caution on Silver prices, as prices have already risen significantly and a further pullback over the near term can be expected.

SILVER - SOARING PRICE & RISK !

Here is a fantastic Silver chart from Carl Swenlin of Decision point.com.

Here is the link:Silver Still Soaring

Clearly, silver has had a fantastic rally, and could possibly rise still further as speculators rush in. The Bullish Bear Blog has been bullish on Silver ever since the inception of the blog.

However, the almost vertical rise prices makes me wary of a sudden selloff ! Buying in at this stage is ''HIGHLY RISKY''.

For those already long the white metal, I think it's time to start booking profit in stages and sticking to stop losses, to lock in profits.

Wait for a pull back to invest, and yes it's time to take some chips off the table for now.

ROBERT PRECHTER : 6 TRENDS ABOUT TO REVERSE

Here's an article I came across in 'The Business Insider' > Robert Prechter: These 6 Trends Are About To Reverse‎

"

Prechter argues there are several themes out there right now that investors, economists, and markets all believe to be true just like they did with interest rates in the 1980s.

• 
  
  The dollar - everyone is bearish.


• 
  
  Interest rates - everyone thinks they're going to rise.


• 
  
  The stock market - everyone is bullish but corporate insiders.


• 
  
  Inflation expectations - everyone thinks it is going to go higher.


• 
  
  Economy - everyone is confident in 2011.


• 
  
  Oil - everyone thinks it is heading higher.

"

He makes some really valid points. Ignore the principles of 'Madness of crowds' and 'mean reversion' at your own risk.

GOLD : RALLYING IN ALL CURRENCIES

EURO RALLY - SUSTAINABLE....NOT

A positive rate outlook for the Euro and the continuing downtrend in the USD has resulted in quite a sustained uptrend in the EUR USD exchange rate. As the Club Med nations come to the table asking for handouts, the ECB has gone ahead with the first of many proposed rate hikes. Rising inflationary pressures as a result of booming commodity prices led by Crude Oil could have forced the ECB's hand at this point.

But is this rally in the EURO justified?

Is the USD in much worse shape than the Euro?

Here's my analysis:

• The Euro has considerable exposure to Club Med and is by no means out of the woods.
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• The USD too has many structural weaknesses - rapidly expanding Federal debt levels, terrible finances at the state and municipal government level, a slumping housing market and uncomfortably high unemployment.
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• But the fact remains that the USD is oversold at the moment.
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• The CBOE VIX is currently trading well under 20, at 18 currently. A warning sign for perma bulls.
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• Equity markets are far too complacent at the moment, totally ignoring the headwinds of $113 Crude Oil and all the negative geo -political newsflow. The risk reward ratio is clearly against the prudent investor. .


• Just like 2008, an equity market sell off will once again be accompanied by risk aversion and a rebound in the USD as investors shun other risky asset classes ( emerging market equities and hot commodities) for the relative safety of the USD and the US Bond Market. The USD always benefits from the flight to safety during market panics.

Sadly,most fiat currencies are seriously flawed as governments continue to ignore structural problems of their economies, preferring to ''kick the can further down the road''.

This is reflected in the fact that Gold and Silver continue to rally in most currencies.

Commodity currencies like the CAD, Swedish Krona & the Australian Dollar remain vulnerable to a sell off in the commodity markets. The Swiss Franc and the Japanese Yen have also shown sustained strength vs the USD.

To conclude, I expect the USD to recover when the stock market starts to sell off & I expect further negative newsflow from Club Med in coming months to weaken the ''overbought'' EURO.

SILVER FEVER !!

Most fans of the precious metals sector will obviously be over the moon after the monstrous rally in Silver in 2011 so far.

The USD continues its sell off, while the Euro rally continues despite all the trouble with Club Med.

With all the momentum in Siver bullion, prices could rise still further.

Personally, I would advise against any opportunistic buying at the moment, as the risk reward ratio is clearly against the long only trader for now.

For those investors with access to hedging strategies, perhaps they can use put options to protect long positions, given the overbought position in Silver.

Mr P. Radomski of Sunshine Profits has some excellent analysis in his latest free update.

VIX & COMPLACENCY & the UNPREDICTABILITY of MARKETS

Despite all the news on Libya, Japan, the EU Debt crisis and the discussions of raising the US Federal debt ceiling, global stock markets continue to trend upwards.

Are we overdue for a spike in the VIX ?