Momentum Dollar Bounce Almost Complete

Friday, December 18, 2009

In our December Outlook I highlighted the possibility of a dollar bounce upon breaking out of the descending channel. The euro has crashed falling 8 cents in just two weeks. This fall has fueled a bounce in the dollar. Our measured move is gauged by the width of the channel and means the DXY still has one dollar more of upside until the momentum move is completed. From there, we will revisit.

I reiterate that I am a major long-term bear on the US dollar and did not participate in this short-term bounce. I continue watching the dollar strength because of its implications on my gold trade. Re-entries into gold may coincide with the DXY topping at $79.


Steve W (The Trade Detective) said...

Fantastic, I was looking at 1100 to get back into gold, and now I'm going to start slowly accumulating, watching the dollar as a barometer.

Two quick quesitons...

1: Do you think this move was mostly prompted by end of the year profit taking by the shorts?

2: If 1 is true, do you suppose they'll jump back in and push the dollar down after the 1st of the year?

Brandon Rowley said...

Steve - thanks for the comment.

1. From a fundamental point-of-view, the bounce in the dollar was fueled by a collapsing euro. Greece's debt woes and downgrades in the Baltic states caused fear over sovereign debts across the eurozone. Many countries have skyrocketing debt much like the US but do not have reserve currency status or as resilient of economies.

Technically, the euro was contending with the psychological $1.50 level and after a couple attempts to push through, failed miserably and sold off hard.

2. I still think the currency of choice is and will be gold, not the dollar. But, since currencies trade relative, until we see a bounce in the euro the dollar will remain inflated. I think the DXY will stall around $79 and I do not expect an extended rally.

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