U.S. dollar and the COT
Last week the March 2010 US Dollar Index opened at 7693 and closed at 7819½. Looking at the daily chart below, a solid technical buy signal came in on Dec. 8. The CRB TrendTrader, which is part of the CRB Winner’s Circle initiated a buy signal on Dec. 8 and has an open trade profit of $1,565.00 per contract. (For an18-month performance of TrendTrader and the Winner’s Circle email me at Gary@cbrtrader.com with Performance in the subject line). Also you can see on the weekly chart below that for the first time in six ½ months the Commercials are adding to their net short positions. The crossed into net short territory back ion Nov. 30 at -1,587 contracts, and this passed Friday, Dec. 18 showed a net short position of -27,292. If we see this posture continuing, we could see continued upward strength in the dollar. Watch for a rising ADX line to confirm the strengthening trend. To use this top position-traders tool email ADX in the subject line and I will send you a book as well as a report on using the COT. Gary@cbrtrader.com

Charts below provided by www.pricecharts.com. 30-day trial click here!

E-Mini S&P Traders
Take advantage of the Special Trial offer to the CRB E-mini S&P Daily Report and read what all the pros are using to help with their daily trades. The CRB E-mini S&P Daily Report is one of the most widely used reports in the industry today so enhance your trading success and sign up today. 

Plus, get you hands on the new free book CRB’s 50-Rules of Trading!

The numbers below represent the Commercial Net Traders positions taken from the weekly Commitment of Traders (COT) report released by the Commodity Futures Trading Commission each Friday. You will find a 12-month high and low with the past 2 weeks of data. To see the past 52 weeks of commercial data please visit www.pricecharts.com. Simply open Analysis under the Resource category at the top of the screen and click on the Commercial Tracker on the left side selection menu. You will find this to be a very interesting presentation of the commercial COT information.

Commercial Net Tracker instructions
This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A. If the current value is at a 12-month low, the cell will display a red/burgundy background. B. If the current value is at a 12-month high, the cell will display a green background. C. If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D. If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

To view the entire year of commercial data please visit www.pricecharts.com.

Fundamental:
The dollar index in the past two weeks has shown a sharp 5% rally to post a new three-month high. The dollar index has rebounded higher from the recent 16-month low of 74.17, which was just 3.472 points above the record low of 70.698 posted in March 2008. Meanwhile, the euro has fallen to a three-month low of 1.436 from the recent 16-month high of $1.5144. The dollar/yen has rebounded higher to 90 yen from the recent 14-1/2 year low of 84.83 yen.

The dollar has rallied due to short-covering sparked by recent U.S. economic data, which has been significantly stronger than expected. That stronger economic data may force the Fed to start raising interest rates sooner than earlier thought, thus boosting the dollar’s interest rate differentials. Recent stronger than expected U.S. economic data includes November payrolls –11,000, November unemployment rate –0.2 to 10.0%, November vehicle sales 10.9 million units (vs. the expected and October figure of 10.5 million), November industrial production +0.8%, November retail sales +1.3%, and the early-Dec U.S. consumer confidence index of +6.0 to 73.4 to nearly match a 1-3/4 year high.

The dollar still has vulnerabilities from (1) the possibility that global financial institutions will continue to shed emergency dollar liquidity acquired during the financial crisis, and (2) the continued wide US Q3 current account deficit of -$108 billion, which results in about $1.2 billion per day of dollars flowing overseas. However, the U.S. trade deficit excluding petroleum has improved sharply in the past several years to post a multi-decade low of $9.7 billion in June 2009, suggesting that the dollar may have fallen by enough to force an adjustment in trade closer to a balance. The U.S. appetite for imported petroleum is not going to end anytime soon regardless of the price of oil or the level of the dollar, thus keeping the overall U.S. trade deficit somewhat high. The best place to look to see if the dollar is cheap enough to force a balance in trade is therefore the U.S. trade deficit ex-petroleum. That deficit indicates that the dollar may finally be cheap enough to create a better balance in trade flows, thus taking some downward pressure off the dollar and allowing some recovery in the dollar.

Legend:
CC  - consecutive closes
UTL - uptrend line
DTL - downtrend line

Charts provided by www.pricecharts.com