Using the standard weekly currency chart we followed along for months as the Euro found resistance at the long-term downtrend line as expected, the commodity currencies long ago lost major support and non-confirmed the commodity complex and the US dollar moved from a hold of critical support, to a trend line breakout, to its current impulsive and over bought status. It is time now for a closer look at Uncle Buck since this reserve currency is key to so many asset markets the world over.
As the charts below show, USD is over bought on both daily and weekly time frames. But the monthly is interesting because its big picture view is that of a basing/bottoming pattern, and it is bullish. That is a long-term director, so regardless of what happens in the short-term, a process of unwinding the hyper-inflationist ‘Dollar Collapse’ cult is ongoing. Signs point to disinflation toward deflation.
We’ll start with a daily chart and then ascend right through the weekly and then the monthly to take the pulse of USD.
As noted, the daily chart below is very over bought. It is currently consolidating the big jerk upward that has come against Euro-negative policy from the ECB and an increasing drum beat about an eventual rise in the Fed Funds rate in the US. People are finally catching on to the fact that the US economy has been strengthening since early 2013 and that the Fed is looking out of touch holding ZIRP despite this strength.
So the dollar is getting bid up. The question the chart asks is whether the current consolidation will work-off of another over bought situation, or is a prelude to a reversal? The answer is going to be key to the bounce potential in many asset markets, but especially commodities, which are generally tanking and precious metals, with gold eventually due to firm after it finishes its bear market and its fundamentals come in line.
You will recognize the weekly chart as it is the top panel of our long-running multi-currency chart. RSI has been added to this view to show the over bought level. Note that the weekly has joined the daily in over bought status on this most recent drive, whereas it was merely healthy – and not over bought – the last time the daily registered an over bought reading in July. [Read more...]