Forex from the U.S. Dollar View
Source: VantagePoint Intermarket Analysis Software
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When many forex traders begin to analyze markets, they like to start with the U.S. Dollar Index – how is the U.S. dollar faring against the major currencies from the rest of the world?
Lately, that’s been a huge challenge as the dollar has had to cope with huge job losses in recent U.S. employment reports, the worst set of economic statistics since the Great Depression, a falling stock market, a proposal for the Fed to buy U.S. Treasuries, various bailout and stimulus programs that have created trillions of new dollars out of thin air and a number of other monetary and fiscal policies that have kept financial markets in turmoil.
But, despite all the bad news for the value of the dollar on the U.S. front, the situation elsewhere in the world has been even worse, and the U.S. dollar was able to gain strength against other major currencies until suffering a setback in March. Now, the dollar is showing signs of regaining its strength as the VantagePoint chart below shows.
First, VantagePoint’s predicted neural index (gray line) has shifted from 0.00 (bearish) to 1.00 (bullish).
Then, note the action of the blue lines in the red circles. The blue line in the top circle is the predicted medium-term moving average, and the black line is the actual medium-term moving average. The blue line in the bottom circle is the difference between the predicted medium-term moving average and the actual medium-term moving average, and its turn up provides the first clue that the downward momentum is weakening and the market may be ready to reverse direction.
With the predicted long-term difference (green line) following the blue line’s shift to an upward angle, it appears that a predicted moving average crossover is on the verge of confirming the dollar rebound to higher levels (top circle).
Euro Mirrors the Dollar Turn
Source: VantagePoint Intermarket Analysis Software
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The currency that many forex traders will actually trade is the EUR/USD pair. As the major component of the U.S. Dollar Index, the euro is a key feature of forex intermarket analysis, and as you might expect, the euro chart is pretty much a mirror image of the U.S. dollar chart. Instead of the bottoming action of the dollar, the euro is showing topping signs.
The predicted medium-term difference (blue line) and the predicted long-term difference (green line) are both pointing down in the lower red circle, indicating weakening of the short-term uptrend of the euro.
The predicted neural index (gray line) bounced back up for a day after first moving to 0.00 (red dashed line) but is again at 0.00 (bearish).
The predicted medium-term moving average (blue line) in the top circle waffled for a couple of days before turning down and appears ready to give a moving average crossover indication that the tend will change.
U.S. Dollar Affecting Commodity Prices
Source: VantagePoint Intermarket Analysis Software
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The value of the U.S. dollar has an impact far beyond the forex market and is probably the most critical factor affecting commodity prices in today’s markets. A student of intermarket analysis is well aware of how the changing value of the dollar can influence the prices of oil, gold and virtually all other world commodities priced in dollars.
The VantagePoint chart of May corn futures provides just one more example.Essentially, when the value of the dollar moves up, the price of corn moves down; when the value of the dollar is lower, the price of corn is higher. It’s not an exact one-for-one, day-to-day match, but the opposite trends are pretty clear on the U.S. dollar and corn futures charts. Of course, that means trends of the euro and corn futures will be pretty much in line with each other.
Corn futures spurted higher, topping $4 a bushel again, after the predicted medium-term difference (blue line) turned down and the predicted neural index dropped to 0.00, the first clues of bearishness in the bottom circle.
The predicted difference lines continued to point down as prices remained higher for several days, but they now are at or below the zero line, further confirming the weakening forces.
The predicted medium-term moving average (blue line) in the top circle has now turned down, and a moving average crossover indicates corn is in jeopardy of starting to slide if prices fall below the previous lows around 3.85.
There is one major caveat that should make traders cautious about any clues in corn or other grains: On Tuesday morning the U.S. Department of Agriculture will release its Prospective Plantings report for 2009 and quarterly Grain Stocks report indicating 2008 crop usage during the first six months of the season. Trader reaction to those acreage and usage figures could produce some severe gyrations in prices until the market has time to digest the new information.
