What I am Watching Today: US Dollar and CPI

DXY

During the session on Tuesday here, we have the CPI figures. We have core CPI month-over-month expected to be at 0.3% and CPI year-over-year at 2.7%. This will have a major influence on what happens with the US dollar in the short term. Higher generally means a stronger dollar, lower generally means a weaker tone.

You can see that the US dollar index has rallied a bit in early trading, really not a lot. And if you remember yesterday, I suggested that perhaps some type of pullback closer to 98.5 and a bounce might be a signal to start buying the dollar. I think that is still the case, but we do have to watch out for those CPI numbers and see how those play out.

NZD/USD

One place I am very interested in is the New Zealand dollar. The New Zealand dollar seems to have a bit of a brick wall at 0.58 and therefore, if CPI comes in even, I think, as expected, I am probably going to be looking to short this. If we break down below 0.57, I think we have another handle to go, would be my immediate guess.

GC (Gold)

With the US dollar behaving the way it is, gold will be interesting. That CPI figure I think will have a major impact on gold in the short term. Longer term, I don’t think it changes much. What I am kind of hoping for here is a bit of a shock pullback. Maybe the US dollar strengthens suddenly; maybe CPI comes out hotter than anticipated. I would love to get involved in gold closer to the $4,500 level.

We will just have to wait and see. That’s the trick with playing a move like this. Sure, if you’re doing something like an ETF like GLD, then yes, just buying here is probably perfectly fine. But as soon as you throw leverage into the mix, like we do in the CFD markets, it becomes quite a bit more difficult. In my retirement account, I’d have no issue buying GLD here. In a levered account, I think you’ve got to look for a pullback and $4,500 is about the first place I see significant support. So, I am hoping for that. If it takes off to the upside, then more likely than not, I’ll just be waiting for another setup, as irritating as that can be.

NAS100

This is an interesting chart to me because I do think Nasdaq is about to launch. We are forming a strong ascending triangle. We also have those CPI numbers coming out, but quite frankly, we also have the idea that quantitative easing is going to start up. The US government is certainly going on a spending spree, and the military budget that is being kicked around $1.5 trillion is going to throw a ton of money into a ton of companies, especially technology-driven companies.

The Department of Strategic Assets

Keep in mind that the United States now has a Department of Strategic Assets that specifically targets things like artificial intelligence, silver, green technologies, military technologies, things like that, almost all of which are high-tech. So, I think the Nasdaq 100 will continue to be a winner. The question is: can we break out? I think we can, I think we will. Anything above 26,000 opens up the next leg higher.

In the meantime, I like buying pullbacks here. I think that is a very valid strategy all the way down to about 25,000, so you’ve got 750 points here to play with for support. I like this, and full disclosure: in my stock account, I’m already long of this in the form of QQQ, the ETF. But in a levered position, you want to see a little bit more momentum.

What I really liked was yesterday’s action, where people freaked out about the Department of Justice announcement and then turned around and bought the stock market back up. I kind of thought that might happen, but its reaction across the board in the Nasdaq 100, the S&P 500, the Dow Jones 30 kind of reiterated everything for me. We’re in an uptrend. I do think we break out sooner rather than later, so I’m very bullish here.

The overall tone of the US stock market right now, you have to keep in mind, is that a lot of money managers are putting money to work for the year. So, we might get a little bit of choppiness as we typically do in January, but I wouldn’t read too much into it.