It’s been a week full of volatile events, both in the geopolitical climate as well as the markets. Obviously, everyone is aware of the perilous situation in the Ukraine that started the week off in a very volatile fashion, and today the week is ending with the release of the all important Non-Farm Payroll Number also referred to as the Monthly Jobs Report. I am not going to dwell too much on these fundamental events, since we always have something happening in the world, and as traders, we should all be aware of the events as they unfold but not make any rash decisions that are solely based on news events. It is interesting to note that the Russia/Ukraine issue is still brewing albeit in a more controlled fashion, but it is something to keep our eye on as the weeks unfold should the situation escalate.
Technically speaking, we have seen a very interesting development in the U.S. dollar Index. This is the index that measures the relative value of the U.S. dollar against the major world currencies. While everyone was focused on Russia and its love of brandishing its military prowess, I was focused on watching some major technical things develop on the U.S. dollar chart.
First I want to point out that while everyone is working hard and earning their wages in U.S. dollars, our currency has plummeted since July, 2013. As the New Year turned, the drop in value suddenly accelerated. How much has our U.S. dollar dropped while we work hard to get paid in the nicely printed green notes? On June 30, 2013, the Index was at 84.43 and as of today, March 7, 2014, we are trading at 78.99 — a loss of a whopping 6.5% in a few months. The more perilous situation is the fact that the Index is approaching multi-year support at the 78.50 region. As you can see on the chart, this level has held off the dollar slide a couple times, so if we get a breach of this level, it may start a panic sell-off in the dollar by the major traders. Also, you see on the chart that the dollar has failed 3 times at the resistance area around 84. If you connect the two lines, you can see a wedge forming. We are very close to the bottom of that wedge, and if we break down, it could signal a deep and ugly sell-off.
One of the reasons we believe the dollar is selling off even with the Fed tapering may have to do with the fact that it is becoming increasingly difficult to get any true value from the U.S. stock markets, which are all at or near record highs. Typically, when professional traders find it difficult to make money from one market, they begin to exit and look at other markets. The European equity markets are about 20% lower from their respective highs, so traders may favor settlement in Euros rather than dollars. Hence we have seen the Euro currency increase significantly in value over the last couple months.
As always, keep your eyes wide open and mind focused while trading. Always use strong money management principles and fiercely guard your trading discipline.
Until next time happy and successful trading!
Mukarram Mawjood, Head Trader
Apex Gold Fund