We could be “finally” seeing the makings of a U.S. Dollar rally. Some sentiment indicators are so oversold and with bullish sentiment among dollar traders in the single digits, one can’t but help think there’s a rally in here somewhere.

This by no means changes any of my long-term outlooks but can come into play on the metals and energy side of things for the very near-term.

The combination of this and what’s looking more and more like a self full-filling prophecy of the usual Commercials smashing the speculative longs on the Comex, could cause a very short-term shake out in gold. But with Physical buying so strong, any shakeout should only last as long as real hopes of the Vancouver Canucks winning the Stanley Cup.

The mini melt-up in the U.S. stock market continues to take hold.

The summer doldrums are gone and the month of October appears like it’s once again going to deliver large-scale volatility.

Ed Note: From Peters Link to – sentiment indicators

US Dollar May Have Set Important Bottom versus Euro

Forex Options and Futures markets show US Dollar sentiment at major bearish extremes versus the Euro, Swiss Franc, and Canadian Dollar. Such one-sided sentiment strongly suggests that the US Dollar could soon recover from its recently sizeable losses, and indeed we believe that the downtrodden Greenback could finally recover on a broad basis.

Volatility expectations themselves have remained fairly limited despite pronounced US Dollar weakness. This in itself suggests that the recent pace of dollar losses may not be sustained. More importantly, we are beginning to see signs that pairs such as the EURUSD reverse from their previously impressive trends. It clearly remains critical to watch price action in the weeks ahead. Sentiment can and does remain extreme for extended periods of time, but the confluence of bearish USD positioning suggests that the Greenback could soon turn against key counterparts.

DailyFX Forex Options Weekly Forecast

Futures positioning shows that Non-Commercial traders (typically large speculators) have become extremely net-long the Euro against the US Dollar. In fact, said speculative positioning is the most long EURUSD since it traded near 1.6000 in early 2008. We consistently warn that extreme positioning and sentiment can and does remain extreme for extended periods of time. Yet it is interesting to point out that options sentiment actually shows many traders are beginning to hedge against EURUSD weakness. It’s possible that the EURUSD has set a noteworthy medium-term top.

British Pound/US Dollar Options Analysis

Futures and options sentiment points to further losses for the British Pound, as markets have aggressively sold the currency through recent trade. Net Non-Commercial positioning dropped precipitously as the GBPUSD broke below the psychologically significant 1.6000. Yet current positioning is a good distance from major sentiment extremes. In other words, there is still a good deal of margin for further selling, and we cannot confidently call for any worthwhile GBPUSD corrections through upcoming trade. FX Options show that traders are indeed hedging against further GBP weakness.

US Dollar/Japanese Yen Options Analysis

Impressive Japanese Yen rallies (USDJPY declines) have led to similarly impressive positioning in futures markets, with Non-Commercial traders the most heavily net-short USDJPY since it last traded below 90. The key difference this time around is that forex options market sentiment is far less extreme. This gives the sense that the Yen has further room to run, and a challenge of generational lows near 87 seems plausible.

US Dollar/Canadian Dollar Options Analysis

Traders have grown extremely net-long the Canadian dollar (short the USDCAD) through recent trade, with FX Futures data showing sentiment at its most bullish since the pair traded near parity. Forex options markets likewise show that traders are increasingly betting on USDCAD weakness—emphasizing that sentiment remains extremely bearish. Given such headwinds, we believe that the USDCAD downtrend is near its end. The recent rebound in options sentiment shows that some are beginning to hedge against CAD weakness (USDCAD strength).

….for the US Dollar/Swiss Franc Options Analysis, Australian Dollar/US Dollar Options Analysis and the New Zealand Dollar/US Dollar Options Analysis go HERE and scroll down the page.

Charts and commentary provided by David Rodriguez, Quantitative Strategist at http://www.dailyfx.com

On Major Moves, Grandich has been very right and not only saved many investors fortunes, but expanded them dramatically. On November 3, 2007 at the MoneyTalks Survival Conference, Peter Grandich of the Grandich Letter warned that “an unprecedented economic tsunami will hit American beginning in 2008”.   Peter advised publicly to short the US market two days from the top in October, 2007 and stayed short until the last week of October, 2008. He began to buy stocks in March 7th,  2009. He also bought oil and oil related investments near the lows after the dive from $147.
….go to visit Peter’s Website.