DOLLAR FALLS AS STOCKS RISE EURO SURGES AFTER RATE CUT YEN DECLINES AGAINST THE DOLLAR WEAK DOLLAR DOES NOT HELP GOLD OTHER COMMODITIES RISE ON DOLLAR WEAKNESS BASE METALS ETF CHALLENGES JANUARY HIGHS

DOLLAR FALLS SHARPLY... The Dollar fell sharply as the appetite for risk surged on Thursday. Chart 1 shows the US Dollar Bullish ETF (UUP) in green with the S&P 500 ETF (SPY) in black. Notice how the Dollar advanced as stocks swooned in the first two months of the year. When stocks bottomed in March and surged higher, the greenback fell from its highs. There appears to be an inverse relationship at work here. The Dollar represented the flight-to-safety trade. With stocks rising sharply, money moved into riskier currencies, in particular the Euro. Chart 2 shows the US Dollar Bullish ETF hitting resistance just below its mid March support break and the 50-day moving average. In addition, the late March bounce retraced around 50% of the early March decline. Chart 3 shows the U.S. Dollar Index ($USD) over the last 2 years. Notice that the index recorded a higher high in February. Despite a sharp decline in March, the index remains well above the July trendline and the rising 40-week moving average. These two combine to mark the next support area around 82-83.

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EURO SURGES AFTER RATE CUT... Strength in the Euro is contributing to weakness in the Dollar. The European Central Bank (ECB) cut its key rate by 1/4% today, leaving it at 1 1/4%. This is considerably higher than comparable rates in the US and the UK. It should also be noted that the cut was less than expected by the market, which expected a 1/2% cut. Relatively higher yields also make Euro-denominated investments more attracted than lower yielding Dollar assets. Chart 4 shows the Euro ETF (FXE) bouncing off support near broken resistance and the 50-day moving average. Chart 5 shows FXE poised to challenge its July trendline and the falling 40-week moving average, which is equivalent to the 200-day moving average.

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YEN REMAINS WEAK... While most currencies surged against the Dollar today, the Yen actually fell. Chart 6 shows the Japanese Yen Trust ETF (FXY) breaking below its 200-day moving average. Overall, FXY sports a double top support break around 105. Notice that broken support turned into resistance in mid March (red dotted line). With the break below the 200-day, it looks like the Yen is relatively weak and headed lower. Chart 7 shows weekly prices with trendline support in the 96 area.

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GOLD TAKES A HIT... Despite a sharp decline in the Dollar, gold was down over 2% in late trading on Thursday. Gold benefited from the flight-to-safety trade earlier this year, but the surge in stocks detracted from this trade recently. In addition, the G20 announced a plan to fund new IMF initiatives with procedes from gold sales. More supply coming into the market is bearish. Chart 8 shows the Gold SPDR (GLD) breaking the November trendline and the 50-day moving average. There is still support at 87.5 from broken resistance and the March lows. However, GLD never followed through on the mid March surge and gave it all back over the last two weeks. This is negative. Chart 9 shows weekly prices with GLD hitting resistance at 98-100 three times from March 2007 to March 2008. The big channel breakout is still holding, but GLD is under pressure and testing support.

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DOLLAR AND STOCKS BOOST COMMODITIES... The falling Dollar and rising stock market boosted commodities on Thursday. Chart 10 shows the US Dollar Bullish ETF (UUP) with an array of commodity related ETFs. Year-to-date, the Base Metals ETF (DBB) is the only commodity ETF showing a gain (+11.57%). Even though the remaining commodity ETFs are down for the year, most paired their losses with considerable advances the last 1-2 months. These include the United States Oil Fund ETF (USO), Agriculture PowerShares ETF (DBA) and Commodity Tracking Fund (DBC). Chart 11 shows the Base Metals ETF challenging resistance from its January highs. Chart 12 shows the United States Oil Fund ETF (USO) finding support at the 50-day moving average and bouncing back above 30 today. The Natural Gas ETF (UNG) remains the big laggard because it has yet to participate in the commodity advance.

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