EURO FAILS AT RESISTANCE - STRONG DOLLAR WEIGHS ON OIL - WEAKNESS IN OIL HITS ENERGY ETFS - GOLD FALLS ALONG WITH OIL - BOND ETFS CHALLENGE RESISTANCE - 10 CURRENCY PERFCHART - PESO HITS NEW HIGH

EURO FAILS AT RESISTANCE... Link for todays video. Continued concerns with Greece weighed on the Euro as it failed at first resistance. Fundamentally, France and Germany do not agree (surprise, surprise) on the details of a rescue package. France favors a European solution, while Germany favors IMF involvement. Whatever the reasons, the currency markets are not impressed with the situation. Chart 1 shows the Euro ETF (FXE) firming around 136 and moving to trendline resistance this week. This bounce proved short-lived as the currency ETF moved sharply lower on Thursday. This decline reinforces resistance just below 138. It would take a break above this level to reverse the downtrend that began in December. A rising wedge also took shape in March and FXE broke wedge support with Thursdays decline. This calls for a continuation lower. RSI is shown hitting resistance in the 50-60 zone. I pointed this zone out last week and noted that RSI met resistance around 50 in mid January. Look for a break above the 50-60 zone to turn momentum bullish.

Chart 1

STRONG DOLLAR WEIGHS ON OIL... Continued uncertainty in Europe helped the Dollar and weighed on oil. Chart 2 shows the DB Dollar Bullish ETF (UUP) bouncing off the top of the support zone I drew last week. The bounce over the last three days establishes support around 23.25. A move below this level would also break the channel trendline. For now, though, support is holding and the uptrend remains in place. The June high and upper trendline of the rising channel mark the next resistance zone in the 24.5 area. In the indicator window, notice that RSI held the 40-50 zone as UUP bounced off support. This is the exact opposite of what happened with the Euro ETF (FXE).

Chart 2

The combination of Dollar strength and stock weakness weighed on oil today. In addition, the Energy Department reported earlier this week that weekly fuel demand fell the most since November. Funnymentals aside, chart 3 shows the US Oil Fund ETF (USO) hitting resistance around 40 the last two weeks. In addition, notice that USO peaked below the January high and could be forming a lower high. The indicator window shows a positive correlation between USO and the S&P 500 ETF (SPY) in 2010. Notice that both fell in Jan-Fed and rose in Feb-Mar. I will continue watching both the stock market and the Dollar for clues on oil. Chart 4 shows the US Gasoline Fund ETF (UGA) hitting resistance from the October-January highs.

Chart 3

Chart 4

WEAKNESS IN OIL HITS ENERGY ETFS... Fridays decline in oil hit the Energy SPDR (XLE) and the Oil Service HOLDRs (OIH) rather hard. Chart 5 shows XLE falling sharply over the last two days. The ETF peaked below its prior highs and could be forming a lower high. A rising wedge took shape over the last seven weeks and XLE is on the verge of breaking wedge support. The indicator window shows XLE and USO moving in tandem. Chart 6 shows the Oil Service HOLDRs (OIH) breaking wedge support with a very sharp decline over the last two days. OIH appears to be much more sensitive to oil than XLE.

Chart 5

Chart 6

GOLD GIVES BACK ITS GAINS... Todays surge in the Dollar and decline in oil took their toll on gold. Chart 7 shows the Gold ETF (GLD) giving back Tuesdays gains with a move back into the support zone. Overall, GLD broke wedge resistance with a surge in February-March. This breakout zone turned into a support zone that held with reaction lows in late February and early March. With todays sharp pullback, GLD is once again testing this support zone. Further weakness below this support zone would be quite negative for bullion. Chart 8 shows the Gold Miners ETF (GDX) hitting resistance after retracing 62% of the Jan-Feb decline. The uptrend since early February remains in place and I am watching support at 44 for signs of a reversal.

Chart 7

Chart 8

BOND ETFS CHALLENGE RESISTANCE... The Fed meeting came and went without much fanfare this week, but the government is set to auction some $118 billion worth of treasuries next week, which ties the record for the largest auction. A lot of supply is about to hit the fan as the 20+ Year Treasury ETF (TLT) challenges resistance this week. Chart 9 shows TLT bouncing between 88 and 92 this year. This is the fifth swing of 2010. A slight higher low formed in early February and a slightly lower high formed in late February high. Taken together, a triangle has taken shape in 2010. Resistance in the 92 area is reinforced with broken support. At this point, the December support break still dominates the bigger picture - and it is still bearish. Look for a move above 92 to break resistance and put bonds back on the bullish track.

Chart 9

Chart 10 shows the 7-10 Year Treasury ETF (IEF) meeting resistance near the 62% retracement mark. After a big wedge break in December, the ETF retraced around 62% with a bounce back above 90. Resistance in the 90.5 area stems from the last two reaction highs. Overall, the swing since January remains up. The trendline extending up from the January low and the early March low mark support just below 90. Look for a break below this level to reverse the upswing. A break above the Feb-Mar high would keep the uptrend alive and target further strength towards the December high.

Chart 10

The 10-Year Treasury Yield ($TNX) offers another perspective to confirm or refute the bond analysis. TLT and IEF represent ETFs. $TNX is an inverted reflection of whats happening in the bond market. Rates move up as bonds move down. Chart 11 shows the 10-Year Treasury Yield breaking channel resistance with a big surge in December and broken resistance turning into support in the 36 area, which equates to 3.6% in rates. A triangle is taking shape above the resistance break, which means the breakout is holding so far. A break above triangle resistance (38) would be bullish for rates and bearish for bonds.

Chart 11

CURRENCY PERFCHART... Perfchart 12 below shows the performance trends for 10 currency ETFs in 2010. The North American and commodity currencies are strong, while the European currencies are weak. First, notice that the DB Dollar Bullish ETF (UUP), Mexican Peso ETF (FXM) and the Canadian Dollar ETF (FXC) are up. Strength in all three North American currencies bodes well for a recovery throughout the continent. In particular, Mexico and Canada benefit from a recovery in their big neighbor. The Peso is the strongest of the 10 currency ETFs this year (ole!). The Canadian Dollar and Australian Dollar ETF (FXA) represent two of the so-called commodity currencies because both countries are rich in natural resources. In contrast to the North American and the Commodity Currencies, the Euro ETF (FXE), British Pound ETF (FXB) and Swiss Franc ETF (FCF) are weak this year. The Euro and Pound each have their own set of problems, but these are compounded by their proximity to each other. These are the currency trends so far in 2010 and they show no signs of changing.

Chart 12

PESO HITS NEW HIGH - OLE!... Chart 13 shows the Mexican Peso ETF (FXM) hitting a new high with a move above 80 this week. The ETF broke channel resistance at the beginning of March and exceeded its December high. While the overall trend here is clearly up, the ETF is short-term overbought after a run from 76 to 80. Also notice that 14-day RSI moved above 70 this week.

Chart 13