I did not think the dollar would test the critical multi-year support line this soon. I thought the prospects for an economic recovery that is looking stronger than in competing developed economies would be sufficient to give the dollar a helping hand up despite the Federal Reserve’s best attempts to keep grinding the currency into powder.
Not even the crisis and chaos in Egypt could stop the dollar’s most recent descent for longer than a day (not visible in the weekly chart above). For a trade, I am currently assuming the dollar will bounce from this support once again, and I am effectively long the dollar index; I even sold my trading position long the Australian dollar against the U.S. dollar (as always, I am clinging to my core FXA position). However, if this support breaks, I will likely be forced to accelerate the rebuilding of my gold and silver holdings far ahead of schedule by scaling into the commodity ETFs GLD and SLV.
I do not think the ever-growing cacophony of gold (and silver) skeptics have quite prepared themselves for a fresh bout of extended and protracted weakness in the U.S. dollar, and it will be interesting to see how those positions twist in the wind under such a scenario – assuming it also boosts gold and silver. I am particularly enjoying Doug Kass’s near crusade against gold as he bets gold will go into freefall all the way to $1050 or so. His latest move was to short more gold after it finally popped in response to the outbreak of violence in Egypt.
Speaking of Egypt, I think the market’s two-day buying frenzy in the EGPT ETF tells us that almost “no one” is worrying about bad outcomes there anymore…
*All charts created using TeleChart:
Be careful out there!
Long: GG, PAAS, FXA, net long the dollar
i read your usd critical support article , and i would like to say great call….i have been fighting this usd down move and had all but given up. i wonder what happens from here ?
anyway , nice post
Thanks! Everything now hinges on Friday’s jobs report. I am remaining net bullish on the USD here and through that report. I am thinking the bounce lasts for more than a day, but I did close out my short EUR/USD position just to take some profits here.