Can the dollar hold up against economic deterioration?
The June U.S. dollar index closed Friday at $1.00635, up 81.23 points and the cash index closed above 100 for the first time since March of 2003. Expectation that the U.S. Federal Reserve would be raising rates sooner rather than later was the dominant factor for the recent dollar strength. On Wednesday the minutes of the latest meeting will be released by Fed Chair Yellen and all eyes and ears are awaiting certain words that would indicate the Feds intentions.
Based on our own assessment of the U.S. economic condition we do not believe the Fed will vie for higher rates in the near term so we expect some dollar selling in the near term. Other currencies were lower with the euro losing 1.2c to $1.0490, the Swiss franc 12 points to 99.79c, the Japanese yen 3 ticks to 0.827, the British pound 1.08c to $1.4733, the Canadian dollar 47 points to .78.08c and the Australian dollar 58 points to .75.83c. For now we are on the sidelines with a bearish bias after having been bullish for the dollar for some time.
April crude oil closed at $44.84 per barrel, down $2.21 or 4.7% and for the week posted a loss of 9.6%. The monthly report by the International Energy Agency once again indicated a glud of crude supplies, tightening storage, reduced demand and further price weakness could be expected. The sharp decline in weekly U.S. drilling rig counts could act as a stabilizing factor but for now we see no reason for any change in supply/demand. We prefer the sidelines.
After a nine day losing streak, gold managed to hold above $1,150 per ounce on Friday with the April contract closing at $1,154.50, up $26. May silver gained 4.5c to close at $15.56 following the shortcovering in gold. For the week, however, gold lost 1%. We prefer the sidelines but a further corrective rally could continue if the U.S. dollar corrects after it’s recent strength. April platinum closed at $1,116.50, up $16 while June palladium closed at $788.70. We prefer the sidelines in metals for now pending further fundamentals related to the U.S. economy, retail sales, the dollar and potential Fed rate considerations.