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.