And the answer is….the Dollar Index is going lower!
Figure 1 is a weekly figure of the US Dollar Index. This is the same graph we have shown for weeks upon weeks now, and with a weekly close below the key pivot at 74.62, there is a high likelihood that the Dollar Index will trade lower.
Figure 1. Dollar Index/ weekly
Key pivot points are the best areas of support and resistance, and at the end of this week, price will close below a key pivot or support level. Just looking at the chart, we note that every close below a key support level but one has resulted in a significantly lower Dollar Index. That one instance is highlighted inside the gray oval and defined the 2008 bottom, which were the all time lows for the Dollar Index. A close below support levels is how one defines a down trend. Old support is new resistance, and I would not consider getting long the US Dollar Index until this level is cleared. We are playing probabilities here.
So what does a lower Dollar Index all mean? I am sure you know the answers by now. In a macro sense, we will still have policies in this country and in Europe that “kick the can down the road” thus assuring the destruction of fiat currency. In other words, some sort of deal will be struck that bails out Greece and that raises the debt ceiling here in the US. The deals will likely fall short of addressing the real issues, and little will be solved except that we can have the “crisis” another day. Risk assets will be preferred, and precious metals will continue their out performance. Equities will continue to perform well, but upside potential is capped by valuation, economic, sentiment, and inflationary concerns.
Of note, I will be on holiday for the next 2 weeks and I will be posting to the blog sparingly.
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