<- SEE latest charts The chart no one is talking about
The markets have been pulled around these last few months with some calling this a bear market rally and expecting sharp falls to come, and others calling for returns to the highs of 2007/08. So how can we look at these markets and get a handle on the direction. We have had all this central bank stimulus and artificially low interest rates, where do we go from here – has it worked? I think we are at a major cross roads NOW and this chart could be the decider. In a normal market you need a degree of inflation; if consumers think prices may drop in the near future they will hold back big ticket purchases, especially cars and houses and cause lag in the economy across many sectors. The lack of a post WW2 baby boom and tight immigration in Japan is a well know example of what happens when inflation evaporates. The global economy has got to this point from a different route but the issue is the same. In February 2010 US core inflation was estimated at 0.2% but came in at -0.1%. The estimate on for next Friday's announcement is 0.1%, if we can't get to that level and beyond after printing so much money last year I think we are in deep trouble. It's normal to see pauses in a recovery at this point but I'm on full alert now. Using technical analysis on the US$ chart we can see how the price action has broken up through a trend line resistance and has now come back to test the support level. Worse case scenario I think is the price action of the dollar moves up from these levels and with so many commodities priced in US$ we see price increases in a tough market, or corporate profit margins reduced as produced absorbed the rises, and further tightening on the high streets. Export levels in the US would suffer, the market would lose confidence. Normally the fed would have the option of cutting rates but they are practically zero now. Deflation world follow as the ability to intervene is now very limited. 
For the market to move up from here, and I think there is a strong technical reason for it to do this, (I called this move up last week in my video on the 5th July 2010), the US$ would need to close below the 84 level on this index this month allowing the markets to a chance to breath and move up here. Mike Hamilton | 
