Forex Trading

Is the Next Major Top in Gold and the SP500 Really Going to Be This Simple ?

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euro20091202

usdollarindex20091202

A lot of market analysis sometimes boils down to some very simple analysis.  But we humans try to make market analysis as sophisticated and complex as possible to make ourselves look smart and feel important.

But could it be that the next major trend change or at least consolidation and retracement be due to the two simple charts above?  I think it could very well be.

The Euro is trending higher on a solid up trendline and appears to be close to the point of some type of final blow off run into that red zone I labeled in the first chart above.  Conversely the US Dollar appears to be headed into that red zone of support, perhaps also in ‘blow down’ fashion.  When either the Euro or the US Dollar Index hits those zones I would logically expect some type of big downward bounce in the Euro and upward bounce in the US Dollar Index.

When they get into those ranges I would think the powers that be (central bankers worldwide) would start making a lot of noises that their currencies have gone ‘too far out of line’.  So that type of thing could cause some huge bounces and break downs and it will probably coincide with them hitting those red zones above.

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Another 5 to 7% Drop for the Dollar or 5 to 7% Rise for the Euro

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There was a great article by Kathy Lien over at moneyshow.com where she makes the forecast and argument that the US dollar could drop another 5 to 7% and that the Euro could conversely rise another 5 to 7%.

The reason this article is important is because the almost perpetual and persistent advance in the SP500 has derived a lot of it’s energy from a slow and gradual falling dollar.  Gold and commodities have also benefitted from this trend especially in the current near term time frame as it appears the gold price is moving into the parabolic stage.

But the main point of the article that I find key is the perspective that currency moves tend to be quite persistent and not that likely to change direction once a firm trend is in place.

She identifies this 5 to 7% range of advance (in the case of the Euro) and 5 to 7% decline in the case of the US Dollar Index and it is interesting to note that those levels correspond to the Euro hitting the resistance level near its previous major high and the US dollar hitting the support level of its all time low.

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US Dollar Index Drifting Down to Some Key Support Levels

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The US Dollar Index keeps drifting downward as if it is on some sort of mission.  Clearly this has helped the broad market keep going UP as well as gold.  The popular story line on the US Dollar Index right now is that sentiment wise there are too many bears and hardly any bulls.  From … Read more

Monthly US Dollar Chart Indicating it May Break Down Severely in September

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monthlyusdollarindex

I have some new information on the US Dollar index and wanted to bring it to your attention.  My obsession with the US Dollar Index continues… But why? Why am I so obsessed with the US Dollar Index.  I am because it is either going to help gold do a MEGA breakout or it could potentially hinder any breakout in gold or even cause a break down.

I just wrote a post on the negative seasonals that are kicking in for the US Dollar Index starting right now.  But I only just now discovered a new perspective on the US Dollar Index that is giving me a little extra dose of confidence that we could see the US Dollar break down severely in September and subsequently cause the gold price to spike to a new all time 30 + year high.

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Keep an eye on The US Dollar Bounce

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usdollar20090807

The US dollar has an upward bounce going today.  The chart above does not show today’s price move but it is near 79 right now.  It is no surprise that gold is taking a bit of a hit today. So now what?

First, before I even get into the meat of what I want to say I should tell you that there is always a bull side and a bear side to every trade, no matter what the time frame is.  There are always levels that if achieved, or if broken, can dramatically change what the outlook is. I am telling you this because there have been times when I have become extremely bullish on something, but then things started changing and key levels were broken, and I had to change my stance immediately. 

So why this talk about bull and bear side?

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US Dollar Index Bounces off of Support Creating Bullish Divergence

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usdollar20090729

The US Dollar Index has elected to bounce off of support creating a short term double bottom.  The bounce has also created a bullish divergence which is now playing out and should allow the US Dollar to move higher shorter term.

In a previous post I was talking about how the US Dollar index was at crucial long term support and that it really needed to hold the 79 level.  A significant bearish decline could ensue with a downward break of the 79 level.  But so far the index had decided to evade this break of support and is now heading higher as a result of this moderate shorter term bullish divergence.

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US Dollar Index Barely Holding Crucial Support

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usd20090721

The US dollar index is barely holding onto crucial support at the 79 level.  This is a MAJOR story in my opinion and could have dramatic implications for several markets including forex, the broad market and gold.

The clear story with the US dollar in 2008 has been the MEGA bounce that it was able to achieve with the flight to safety trade and liquidation trade that was occurring all through 2008.  The US dollar was the ‘least worst’ currency in light of all the worldwide macro problems occurring then.  But now, with calmer heads prevailing and the US administration printing money and starting new programs like they will never go out of style, we see the US dollar once again weakening.  It has now fallen to the 79 range of support.

The 79 range of support is not a simple support, it is a very significant support that goes all the way back to 1990, clearly a significant length of time for a support level.

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