Wednesday, July 22, 2009

Watch US Dollar

and watch the grass grow. But it's at the very critical point. My post in early July showed the charts of Euro and US dollar, both about to break in the direction of the prevailing trend (up for Euro, down for USD). US dollar has been sitting there ever since, within that tiny pennant/wedge.

And here's the reason that it's at the very critical point. The chart is a recycle from my other blog posted in May, but here again not much has changed since then. The US dollar index is slightly below this long-term support line of 80, but not by much (78.67 right now).

I think it will break down. The first time it broke 80 was back in August 2007, and the index dipped to 70. Then a reversal came when the stock market was showing the sign of topping in August 2008, and the reversal got violent in October as the stock market tumbled. Now the dollar is back at the support line the second time in 2 years. The first move down could be considered fake (and it was), the second time it's more likely to be the real move. (Although sometimes it takes more than two tries to break the support line.)

If it breaks down, a short-term target will be the March 08 low of 70. The dollar remained at that level for several month while the stock market was rallying. (See the green box area in the chart.)

Beyond that, no one knows, as US dollar has never, ever, been lower than that. It will be a new world for all of us on this planet. Good luck to all of us.

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