This morning, as we approach the US Fed announcement on monetary policy, we see the majority of the commodity complex moving up in price, with coffee and natural gas leading the charge. US stocks are still strong, and the bond market is really staying in one place until we hear official commentary from Bernanke and co. this week. It will be interesting to see market reaction if Bernanke is still not completely clear that more QE will occur. This is a distinct possibility as even though the recent jobs report was under estimates, it was still positive at almost 100K new jobs created. Thus at this point, notwithstanding still looming issues in Europe, the stock market may very well be in “win-win” scenario right now, as we anticipate a rally if Bernanke indicates more QE, and also anticipate a rally if the US economic data keeps improving.
Today, we’d like to share our focus on the US dollar index. Today we take note of a very important price situation as the US Dollar index has broken beneath the 80 level for the first time since May of this year. The USD has recently broken a multi-month upward supportive trendline dating back to October 2011, and a new upper resistance line is forming from the lower highs that have been put in these past two months. We have been writing that our key pivot level for USD is 82. We have been saying that if USD can hold above 82, we see a rally to the 88-89 area, but if it cannot hold above 82, then it is a bearish situation. Right now, the USD has not been able to hold above 82, thus we look for the next support level to be hit at 78. Of course this is driven by monetary policy fundamentals – Bernanke has clearly opened the door for more QE. Now, our 82 pivot level turns into resistance. We shall see what Bernanke tells us this week.