Thomas
DeChastelain
Memorial Archives

$USD Chart Update
posted Jun 5, 2004 at 12:34PM











Commentary

I have been of the mind that the USD, having completed what appeared to be a major five wave leg down was due for a major retracement of that whole move.

So the spin-meister in me would want to say that this recent weakness in the dollar is analogous to the price action in equities leading to its March 2003 lows; the markets way of getting the last of the dollar perma-bears into the market.

If you remember the equities were constantly moving up to thier 200dma averages and then getting repulsed..and by the time March rolled around all the perma bears were in full cry, certain that the next wave down was happening. There was no shortage of 3 of 3 of 3 of 3 EWA counts and everyone was cajoling everyone to take up massive short position.

Buying into that low was one of my better contrarian calls (although imagine my chagrin after I sold off at nas = 1600, when the markets just kept climbing)

Of course currencies are not equities. And when looking at equities at the time I had access to much fuller information..Advance/Decline, volume, an arrary of sentiment indicators, PCP VIX etc. I have none of these when looking at the dollar.

Still some important things have changed. In past corrective rallies there was no danger that the Fed was going to raise rates, and the economey seemed incapable of generating jobs, and the price of oil was relentless in its ascent. As such the carry trade could simply use these periods to load up for the next leg.

The situation is different now. The Fed may be slow in raising rates...but he certainly is not going to lower them. The economy is generating jobs and one can argue that oil prices have peaked.

In the short term the dollar has found support at the 50% retracement level and has stochastics bottomed out. As well the COT report shows that commercials have covered their short positions and initiated samll long positions.

But quite frankly I am getting this slight buzz in my head that comes when I try to shoehorn facts to fit a pre-conceived notion. If the daily chart was an equity...I certainly would not be jumping in and probably would not even consider it until it hit 87...a measured move target for the channel break-down.

Indeed there is no lack of bearish portents on the charts above. If the dollar does not start moving up with some vigour, and the momentum indicators remain in oversold levels, it will be an indication the dollar bear is indeed back.

As well even if the USD did mount some kind of charge to the 200dma, it would be charting out a potential bearish head and shoulders.

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