How to play the U.S. dollar

September 14, 20128 Comments

 

The USD has been forming a large symmetrical triangle since 2005. I drew the trend lines on this chart a year ago and kept it on my chart list – and like magic, the dollar hit my top trendline and declined right on schedule. The trend for the USD is down, with a potential target on this relative index of 0.75 (vs. a basket of world currencies). Please see the long term chart above to view this formation.

Near-term, the dollar is oversold. Take a look at the short termed chart below. Its below the 50 & 200 day MA’s which indicates intermediate-term bearishness, but the classic momentum studies (RSI, stochastic) are universally oversold. They are NOT “hooking” up yet. Thus, an oversold bounce is likely in the near term, but the signal I look for hasn’t triggered yet. Any bounce would likely be a signal to reduce USD exposure, or play the downside. A reader enquired about a way to play such a rebound. My thoughts are that going long the USD would be counter the bigger trend, and a very short termed play—perhaps too short to capitalize on. If you are aggressive, the Horizons DLR-T ETF is a direct long play for the USD. Personally, I would rather short than long the dollar after a bounce, but since I don’t short individual securities as a rule—my decision is to simply avoid the USD where possible.

Gold is a counter-USD play, and has been moving nicely. I mentioned in this blog that I went long gold after it bounced off of $1560 support back in early July. Wish I had bought more–like anything that moves so strongly, you always wish you had bought more, eh? Strong resistance comes in at $1800 for gold. The seasonal strength period ends in October for the metal. Perhaps those who are overweight the metal might take a bit off of the table in the coming weeks given the potential for a short-termed pullback near $1800. But its negative correlation to the USD suggests that holding some gold may continue to make sense – thus my suggestion to continue holding some exposure even past the seasonal strength period.

 

8 Comments

  • HI Keith, XGD broke through 21.25 today, where do you see next resistance.
    Thanks.

    Reply
  • I have a question about your website presentation, if you don’t mind.

    I don’t know if I am the only one with the problem, but the print on this site is very faint compared to all other sites. Are you aware of this, or is this just me, but when I read via computer, or print, the problem remains the same.

    Any thoughts?
    thanks

    Reply
    • Thanks Henry–i am going to point this out to my IT person. I appreciate the comment–it helps me improve the site!

      Reply
  • Hi Keith,
    Congratulations on Gold & your strategy(ies). Would this be good time to buy US securities from what you are expecting to happen to US $.Thanks in advance.

    Reply
    • How’s this for an answer, Muntazir–yes and no!
      Yes, markets will likely rise in the next while, thanks to Helicopter Ben and his Magical Money Printing Machine. But no, not right away. Overbought momentum indicators are screaming very short termed sell signals, so I think its going to be best if one buys on the dips. See my post later today (Monday Sept 17th) on the macro view for more details.

      Reply
  • Keith
    I enjoy reading your blog entries, although i may go several weeks without checking your website. My suggestion for improvement is to add the date on the blog entriy. That way the reader will know when it was posted. Keep up the good work.

    Reply
    • Thanks Doug-much appreciated.
      To check the date of the blogs, go to the smartbounce.ca homepage, and then top right side of the page it says “blog”. Click that, and you will see all entries in chronalogical order with their respective posted dates. Also, at the bottom of each blog is the date.

      Reply

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