Technical Analysis: An Opportunity in the Greenback

Since topping out at 103.81 in early 2017, the U.S. dollar has been nothing short of a slow-motion disaster. Things got so bad by May 2017 that the currency broke below the support line of the falling wedge pattern. Much of that may have been a result of Donald Trump’s weaker dollar policy, though as well as with political uncertainty.

It also fell well below it s support line at the 200-day moving average.


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The only folks that have enjoyed this move have been the gold bugs, as the yellow metal soared from a low of $1,214 to $1,255. 

While most traders would have given up on the dollar at 97.26, take a closer look at the technical setup.  For one, in late May 2017, it appeared to have found a new base of support.  Plus, look at what relative strength (RSI), MACD and Williams’ %R (W%R) were telling us.  On agreement, they all said the dollar was oversold.

To confirm that finding, we can look at the last year of trading. 

Each time RSI, MACD and Williams got far too extended into oversold territory, the dollar reverted to mean.  Just like a rubber band that was pulled too tight in one direction too much, it snapped back.

If we draw new trend lines, we can make an argument that if the currency holds 97.26, it could bounce higher to retest 99.14, near-term.  It’s a wait and see.  But interesting to note, the dollar did hold that previous wedge pattern since early February 2017. 

While shorting gold would be an option on a strengthening dollar, another way traders have capitalized on the currency recovery has been with the Power Shares DB US Dollar Index Bullish Fund (UUP). 

As of May 2017, it also became aggressively oversold with the currency.

For comparison, we can look at the Power Shares DB US Dollar Bearish Fund (UDN), which enjoyed a run from $21 to $21.50, where it had become aggressively overbought. 


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