Sunday, August 22, 2010

U.S. dollar analysis

The dollar broke out of a two month descending channel earlier this month. Interestingly, in a show of strength, it broke out of this channel with a bounce off MA(200). Of course, there was the now common break of MA(200) for a couple of days, probably to run over some stops lying just below MA(200). The dollar consolidated nicely since that breakout and held the MA(20), before finally making a relatively big move up on Friday. So far, so good. But what makes things interesting now, and the reason why I decided to do this post, is the presence of MA(50) directly overhead. This presents the first big challenge to this uptrend in the dollar since its breakout earlier this month. 

To provide another perspective, here is a weekly chart of the dollar heading back almost to the beginning of the millennium. 

We are right in the middle of a two year ascending triangle. The dollar bounced right off the weekly MA(50) and MA(200) this week and a bullish crossover of the two averages is imminent. Are we in for a move upwards to the resistance level? If yes, this move would not bode well for the overall markets.

For an analysis of all the market sectors, click here. And here is the link for the best and the worst performing industry groups.

Take care and good luck!


Bill said...

i have to agree with you on this one. The last thing this market needs right now is a strong dollar, it just means more reasons to buy bonds. BTW how low will bonds go, seriously. WOW. i'm also kind've surprised that the bond market yield drop and the stock market indexes haven't followed the same path the last 4-5 months, im sensing a massive institutional sell off in the making esp as more and more individuals pull their 401k's early and hedge funds become more popular for the smaller investor, their is just little incentive for individual investing anymore especially for upcoming retirees. And once institutions start selling it will drive stock prices down in a hurry.

positiontrader said...

Now it is my turn to say, I agree with you Bill! Its looking ugly out there. Unless there is some surprising good news, I see us finally breaking the trading range we have been in in the past few months - to the downside.