$USD Charts and Commentary
posted May 20, 2004 at 09:25PM
Short-Term Price Action
From a technical stand-point the counter-trend rally in the USD remains intact. It is important to remember how oversold and how bad the sentiment was when the greenback put it in its IT double bottom. Markets tend to have a linear logic that is divorced from fundamental reality and it will take some time for things to unwind
I am of the mind that this counter-trend rally is one of high degree and will retrace a portion of the entire move down. As such it will go higher and for longer than most people expect. The fact that the dollar has remained firm in the midst of high oil and a deteriorating geopolitical framework are also signs that something "systemic" is going on to force the dollar up.
The support trend-line on the daily chart is a key technical characteristic to watch. It should hold for the near term. As well the 50 ema is coming to a conjunction with the 200ema. A cross is a bullish confirmation. Failure to cross will have bearish implications.
Minor technical divergences along with bearish MACD cross as the USD ran into major resistance lines are arrows for the bearish case.
I think the two main reasons I am leaning on the bullish case for the USD is because it is coming off oversold levels not seen since the 87 bottom. As well recently oil stocks have not been confirming the commodity itself, a situation reminiscent of the gold sector. Again oil is a market where everyone seems to be on the same side of the boat. A dropping oil price would artificially increase, short term, the purchasing power of the USD.
A dropping oil price though would also decrease the pressure to raise rates.
This will have conflicting impacts on gold and I would love to tell you I know exactly how this will play out, but I don't. I prefer to stay mostly in cash with an eye to accumulating gold and energy stocks over the coming year.