The US Dollar Bear Market - Is the downtrend about to resume ?
Currencies / Forecasts & Technical Analysis Oct 29, 2006 - 11:51 AMBy: Nadeem_Walayat
The US Dollar (USD Index) has sold off strongly in recent weeks, does this signify a resumption of the long-term dollar bear market ?
After Bottoming in late 2004 at 80.39 , after which we have basically seen a correction against the downtrend that has taken the dollar to as high as 92.6 in late 2005, since which the trend has been down with recent sideways activity within the range of 87 to 84. With most recent action closing near the lower end of the range at 85.20
Technical Analysis
1. Fundamentals-The dollar correction against the downtrend coincided with the Federal Reserves rate rises which now appear to have come to an end, thus a major support leg to the dollar is being withdrawn. The US growth is also expected to slow in 2007, which implies that rates will be cut. The US is running large trade and budget deficits, which are likely to impact negatively on the dollar.
2. Trendlines & Support - The decline from 93 has seen the dollar break two support trendlines up from the 80 low. The most recent up trendline has supported a weak up trend, which has had the characteristics of being corrective against the decline from 93. This weeks activity has again see an attempt to end this uptrend with a decline towards the lower end of the uptrend.
3. MACD - (Bottom indicator) - The MACD is holding along strong support trendlines, which suggest that on a long-term basis the dollar is neither oversold nor overbought, so implies that the sideways trend is likely to be supported.
4. Time - The corrective uptrend form the 80 low has now run for 2 years, which implies that the dollar is running out of time and the downtrend given the recent price action is likely to resume sooner rather than later.
Conclusion - On a break of the support trendline, currently at about 84, is likely to resume the long-term bear market. As long as support holds then the dollar could continue moving sideways into 2007. But the pressures are building for a break lower. On the upside, would require a break above the down trendline, at around 88 to negate this current bear scenerio, such a break would target 93 initially.
Sell Trigger - A break of 84.10
Target - First target 80, 2nd target 70.
Stop-Loss - 87.50 (above the last high).
Nadeem Walayat
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