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Currencies / US Dollar Mar 23, 2009 - 08:28 AM GMT

By: David_Petch

Currencies Diamond Rated - Best Financial Markets Analysis ArticleCurrency mayhem this week caused a rally in most commodities as the US dollar broke trend line support and headed lower in a sharp decline. Analysis today will clue into the expected trend of the US dollar over the coming weeks ahead.

The daily chart of the US Dollar Index is shown below, with lower 21 and 34 MA Bollinger bands riding the index down, suggestive that a decline to the lower 55 MA BB is possible (80.28). Upper 21 and 34 MA Bollinger bands have curled up, suggestive that until they curl over, there will be further weakness in the USD. Full stochastics 1, 2 and 3 are shown below, with the %K beneath the %D in #1 and #2. Based upon extrapolation of the trend, weakness in the USD is likely to persist for another 7-10 trading days before putting in a bottom.

Figure 1

Figure 1 copy.gif

The daily chart of the USD Index is shown below, with upper Bollinger bands starting to roll over, suggestive a top has been put in place. Full stochastics 1, 2 and 3 are shown below in order of descent, with the lower 55 MA Bollinger band at 64.02, up from last week's value of 63.80. Full stochastics 1, 2 and 3 are shown below in order of descent with the %K above the %D in stochastics 1 and 3 and beneath the %D in stochastic 2. As per Figure 4, the USD index is likely to decline to around 80 before putting in a bottom. One thing for certain, when the %K falls beneath the %D in stochastic 3, it will trigger significant weakness in the dollar. For now, expect a decline to around 79-80 and some stabilization before heading higher.

Figure 2

Figure 2 copy.gif

The monthly chart of the US Dollar Index is shown below, with the upper 21 MA Bollinger band well above the current level of the USD. Lower 21, 34 and 55 MA Bollinger bands are presently at 68.45, 70.43 and 69.81, differing from last week's values of 68.10, 70.29 and 69.80, respectively. Rising BB values are suggestive that a top of some form has been put in place. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in all three instances. The upward trend of the USD is still intact at present on the monthly chart, even after the recent sharp downturn

Figure 3

Figure 3 copy.gif

The short-term Elliott Wave count of the USD index is shown below, with the thought pattern forming shown in green. Last week I had wave (B) still in a sideways consolidation pattern, but a break of the rising trend line indicated wave C is underway. Once complete, wave [C] up should begin, which should coincide with liquidation in the broad stock market indices.

Figure 4

Figure 4 copy.gif

The mid-term Elliott Wave pattern of the USD Index is shown below, with the thought pattern forming denoted in green. Based upon the severity of the decline, wave C should be complete in 2-3 weeks time, ironically around the point in time the broad market indices are set to decline. As per Captain Hooks most recent article, there could be a huge short squeeze in the S&P up to 1000, but anyone trading such a move is required to be sitting in front of their computer. . After the S&P 500 Index completes its pattern, whether it is a triangle going sideways or a rising terminal pattern, its decline below recent lows will likely be attributed to a rise in the USD. Since the USD is still the reserve currency of the globe, anyone caught in the squeeze will be forced to liquidate.

Figure 5

Figure 5 copy.gif

The daily chart of the Canadian dollar Index is shown below, with the index punching above the upper 21 MA Bollinger band. Full stochastics 1 and 2 have the %K above the %D, suggestive that there is another 2-3 weeks of strength at a minimum in the Canadian dollar.

Figure 6

Figure 6 copy.gif

The Australian dollar Index is shown below, with the index breaking above the 21 and 34 MA Bollinger bands. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2. As per the Canadian dollar, expect another 2-3 weeks of strength in the currency from down under.

Figure 7

Figure 7 copy.gif

The daily chart of the Euro Index is shown below, with a sharp move above the recent bottom of early March. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2. Notice the %K in stochastic 3 is curling up to cross above the %D, suggestive that the Euro has another 2-3 weeks remaining, with an upside price objective of 145-146.

Figure 8

Figure 8 copy.gif

That is all for today. I will update oil and the XOI tomorrow AM.

Have a great day.

By David Petch

I generally try to write at least one editorial per week, although typically not as long as this one. At , once per week (with updates if required), I track the Amex Gold BUGS Index, AMEX Oil Index, US Dollar Index, 10 Year US Treasury Index and the S&P 500 Index using various forms of technical analysis, including Elliott Wave. Captain Hook the site proprietor writes 2-3 articles per week on the “big picture” by tying in recent market action with numerous index ratios, money supply, COT positions etc. We also cover some 60 plus stocks in the precious metals, energy and base metals categories (with a focus on stocks around our provinces).

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Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities as we are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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