Yesterday the Brent blend (the benchmark for almost a half of all the oil traded internationally) marked 79.99 $/barrel for a few minutes. Parallel to that the US$ dollar index sunk briefly below 80.20 points.

What's the importance of the 80$/barrel mark and the 80 threshold for the US dollar index? Above all they are two lines beyond which we are sailing uncharted waters. Beyond them investors and traders loose the knowledge of past market behaviour to lead their way - it's sail by sight from then on.

The fact that we approach both lines at the same time is not exactly a coincidence. These are two faces of the same fundamental problem: the Economy is loosing growth momentum. While the amount of resources being drawn to the Economy is more and more sluggish, the amount of money available to the economy keeps growing, especially the current de facto world currency, the US$.

Yes, it has all to do with a flat world oil supply since mid-2004. As researches like Ayres, Kummel or Hall have long been pointing, oil was responsible for half of the economic growth registered in industrialized countries in the XX century. Now this is the XXI century, and has Hubbert showed more than 50 years ago, the oil led growth comes to an end.

Last night I took some time to check the US index. Since the beginning of 2006 the daily index has kept below its 200 day moving average - a clear bear market. My simple analysis told that the 80 mark would be cross sometime in the first weeks of August.

Now just imagine: the dollar index goes below 80 and stays there for one or two weeks. The dollar has crossed below 80 solely on brief epochs that can almost be considered outliers in the time series. If that line is crossed for good, those 5+ trillion dollars kept as reserve currency in central banks throughout the world start to get repulsive as cockroaches at the bakery store.

And the dollar going down just means that energy, metals, food, clothing, are all going up. It is one and same thing - we just can't keep up growing our consumption as before.

This morning the Brent blend opened mildly hovering around 79$/barrel. By 10 o'clock there it was: 80.something. It has kept over that since then.

The currency market has been mild these last two/three days with the € shyly testing 1.38 against the dollar. About one hour ago, 16h00 in Lisbon, 11h00 in New York, the currency market shocked up, sending the dollar below 80 on all futures and bringing the cash index briefly to a perilous 80.1 points.

It is not over yet, the markets usually work cyclically, we'll probably get off those marks. But the underlying trends are still there, and barring unexpected (and potentially disastrous) action by the US Federal Reserve those two 80 lines will be crossed again. For good?

Resources:

US$ index (USDX): what it is, how it is calculated.

Latest USDX values.

Latest Oil prices.

A technical analysis of the USDX (made by a gold investor).

P.S.: I think this entry had to go today. Unfortunately I won't be here to comment on comments because there's a weekend on the saddle coming my way. Best to all.