Net shorts on a decline in the euro came in at 21,315 on April 29 — compared with net longs of 18,907 a week earlier, according to the Commodity Futures Trading Commission (CFTC). Currency strategists now expect the dollar reversal to reach $1.52 within the next few days.

That’s not a whole lot, compared to the epic decline of the greenback against the euro and almost all other major currencies over the past four years. So far, however, the U.S. currency has appreciated 3.6 percent from its record low of $1.6019 on April 22.

(As a reminder, $1.60 per euro had been identified as the EU’s pain threshold by influential German economist Peter Bofinger in February. Despite the publicized inaction of the respective G7 and G8 meetings, it stands to reason that an orderly if clandestine manipulation of currency markets in favor of a stronger, less life-threatening dollar is by now well under way.)

Which is good news for those who bought U.S. stocks and debt with foreign currency at recent lows.

Follow the money: As both the development of gold prices and oil prices showed last week, this trend reversal in the currencies market will most certainly translate into a backlash against the hoarders of commodities and energy-related stocks and assets. Confirmation of the trend, accompanied by a strengthening of U.S. stocks, will put additional external pressure on the bubble levels in the commodity markets.

This backlash could be short-lived. It could also carry on for months.

I peg the downside risk for gold at $820-810 per ounce over the next two weeks. Oil may even hit the high $90s per barrel. Remember, these commodities are part of an interdependent speculative matrix of currencies, commodities, and equities:

If you count on gold to be your financial life saver, remember that its qualities as a floatation device are similar to those of lead.

J. Christoph Amberger
Today’s Financial News