Monday, June 09, 2014

The U.S. Dollar: A Near Term Bearish Scenario Reviewed

Because of the inverse relationship between commodity prices and the U.S. dollar I thought it would be a useful exercise to review some of the fundamentals indicating a "bearish" near term scenario for the dollar. I was reminded of this after a fantastic free article by Clive Maund appeared. Please bear in mind that the trending that I am reviewing is near term on the daily chart, so direction over the next two months or so can be expected.
  • Please be cognizant that a critical support exists at $0.79 to $0.78. This bottom was put in place back in 2012 and has been tested aproximately nine times since then. A break below this in the long term would be a significant negative event for the dollar.
  • Clive Maund has indicated the presence of a dome structure during this time. We are currently at the upper limit of this dome with only the support starting at $0.79 and has been tapering down since the first half of 2013.
  • Reviewing the channels, contact with the uppermost limit of the declining channel was made on Thursday which also happened to be a horizontal resistance point that was put in place back in April at approximately $0.806.
  • Sell signals appeared on the RSI (14) and (5) indicators
  • MACD and TRIX both had signal lines that crossed over downwards
  • Also on Thursday momentum became negative 
  • Horizontal resistance points appear around $0.798, $0.794 and $0.790 so plenty of inflection points and areas for minor reversals before testing the $0.790 to $0.78 region.  
  • None of this decline should come as a surprise as an "increasing number of Russian companies" are switching to the Chinese Yuan (Zero Hedge)