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How Far Will the US Dollar Rally?

by: Tate Dwinnell August 14, 2008    

Tate Dwinnell

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Quite a bit has been made of the dollar rally recently and its contribution to the demise of commodities over the last several weeks, so I wanted to put up a 10 year chart of the US Dollar Index to get an idea of just how far the US dollar may rally before pulling back, which could be the catalyst for a furious snap back rally in commodities.

As I've said to members a couple weeks ago, I think the major bull run in commodities is in great jeopardy and I'd be selling into a major rally, but in the shorter term there is going to be tremendous profit potential across gold, oil, coal, etc.  We're seeing some of that already, which could be the beginning. 

Look at the major downtrend of the dollar and the spike over the last month.  This rally is nearly vertical and the largest in 3 years.  If you believe that the dollar is going to be able to sustain this kind of move and blow through major resistance of a 6 year downtrend, then keep shorting commodities.  If you believe the dollar will fail at this line of resistance, at least for a few weeks then place your bets!

us_dollar_chart813

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This article has 4 comments:

  •  
    Aug 15 09:18 AM
    I don't know, do you?

    War Premiums are hard to project from the short term chart provided.
    Reply
  •  
    Aug 15 09:30 AM
    This is one of the most instructive articles on dollar devaluation seen on SA for quite a while. Of late, the majority of negatively correlated sectors, e.g., gold and silver, are snapping like rubber bands. If you combine the strong vertical rally in the dollar shown in the figure above, with the strong downtrend in gold the occurred during this week's huge correction, there is strong potential for gold to rebound. The gold mining companies are known to bounce up a lot more than gold since they correct to a greater extent -- so be sure to load up on the mining companies like ABX, ASA, AUY, BAA, GFI, GRS, GSS, MFN, NEM, NGD, NSU. The bullion plays for gold ETFs are GLD and IAU, while silver ETFs (bullion) are DBS and SLV. Once in gold, watch the "ultimate oscillator" for GLD on (for example) stockcharts.com, and when it goes above 70, get out of gold, and then wait for the next occurrence of the CCI to break above -100 or ultimate oscillator to break above -70. The "on balance volume" (OBV) for GLD is also starting to approach a one-year low, which means that there is only once place for GLD to go: UP.

    In summary, get into gold and silver now before it's too late. There will probably never be another buying opportunity like the one we are currently in. Fundamentally, every day there is negative news about the US economy: an incurable credit disease, huge bank write-downs, bank failures, money pumping, inflation, plus potential for OPEC to get out of the dollar, and news today of a growing separation between Ginnie Mae and the 10-year US Treasury Note.
    Reply
  •  
    Aug 17 04:35 AM
    With the beginning of Falling Euro, I do not think US Dollar will come down in the near future. Dollar will appreciate more and more. Sooner than later European countries, Australia and in New Zealand will gradually they will reduce their interest rate. It is happening in some countries now.

    On other hand this time, Fed took bold decision by holding rate without any change. I think their main idea is controlling inflation. Sooner than later Fed will increase interest rate as well.

    I strongly believe US Dollar will appreciate not only against Pound and Euro but also with baskets of currencies such as AUD, NZD, and YEN with some soft currencies
    .
    Euro is falling due to Weakness in the European Economy. They have more problems such as falling house prices, credits squeeze, inflation and falling employment etc.

    We will see dramatic fall in commodity prices in the next 18 months and because of this American and European industries will have rapid growth especially in companies like Boeing, Airlines, heavy industries, Chicken sector etc.

    Their market share for products and services will rise dramatically not only in Europe and The USA but also in newly emerging countries such as China, India, and Brazil etc.
    Reply
  •  
    Aug 17 07:55 AM
    It's nice to see somebody using a chart. The dollar has a great deal to prove before the label "bull" means something positive. But the index is 70% euros and yen. Competitive currency devaluation could easily push the dollar higher without helping the economy. Much of the recent GDP strength has come from rising exports caused by the weak dollar. Reduce those exports and GDP shrinks. It won't help the move to alternate energy sources either. But let's see if that downtrend line can be broken... Keep the charts updating...
    Reply
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