A Final Bottom for the Dollar?

Jun 13, 2008: 1:37 PM CST

Is the US Dollar Index in the process of bottoming?  Has it formed one already?  What does this mean for the overall market and for commodities?  Let’s look briefly at the charts.

First, the ‘structure’ of the Daily US Dollar Index:

Notice the price making lows at $71 but always failing to exceed those lows.  Now, look at the structure of a higher high, and three higher lows.

There is clear congestion at the $74 level, but should dollar bulls break through this level, odds are that price will continue in the upside and the birth of a new uptrend on the daily chart will be officially confirmed.

Here’s a look with some indicators overlaid on the price:

Price is above the key (flat) 20 and 50 period moving averages, and a lengthy positive momentum divergence precedes the current action.  Also, a clear up-trend line can be drawn under the three rising lows in price, forming a potential ‘ascending triangle’ pattern which usually resolves to the upside.

Let’s look at the structure of the weekly chart to glean any clues:

While we observe here a textbook example of a perfect (or ideal) downtrend, price is now forming positive momentum divergences and breaking above its 20 period weekly moving average, which has served as significant resistance all throughout the downtrend.  Also, the MACD line (black) is crossing above zero while the trend (red) line has clearly turned up.

All this signals the potential for good things yet to come for the US Dollar index if it can capitalize on the environment and continue rising, which looks likely.

A stronger dollar would likely put pressure on some commodities, including gold and oil.  That would be good news, in that oil prices coming down (off their stratospheric, possibly ‘blow-off’ rise) would be good news not only for average drivers, but possibly for the stock market as a whole.

Adam Hewison of Market Club just released a video entitled “Gold, Crude, and The Dollar – These Three Markets Could Change Everything” in which he discusses what possible trend reversals in these interrelated markets would mean.  The video requests a free sign-up, but no obligation beyond that.  Also, a reminder that starting Monday, I will be posting a link to sign up for a two-week free Trial to the Market Club services which will be interesting and exciting.

Let’s keep our eyes on these markets and what possibly lies ahead!

1 Comment

One Response to “A Final Bottom for the Dollar?”

  1. David C Says:

    Interesting read, i have been watching GLD which seems to have broken its long term support line which is now behaving as resistance. Putting the two charts on top of each other might be interesting..