Has The U.S. Dollar Bottomed?

What a question, "has the U.S. Dollar bottomed?". With Gold near all time highs, the mere thought of this would only come to mind in a contrarian's point of view.

This article will take a brief look at a couple of charts and idea's to keep in mind for anyone who trades the U.S. Dollar, or by trading an etf such as UUP for instance.

Notice that I mentioned charts above. I did so because I don't want to go into any fundamental analysis or reasoning because doing so would surely stir things up a bit and make this article much longer than I had in mind.

The first chart below is a 1 year daily chart of the U.S. Dollar. Notice the following points I've labeled on the chart:

  • Prices bounced and made a new trend low in early November, 2010 at point (5) where I have added the down sloping trend line. At the same time, both point (4) and point (6) formed a divergence and strengthened, forming an up sloping trend line instead. This divergence is typcially what you'll see as a pretty reliable reversal signal.
  • At point (2), prices made a new high with an up sloping trend line as I've drawn, and at the same time, points (1) and (3) formed a divergence and can be seen with the down sloping trend lines that I've added. Another divergence, another reversal.
  • Looking at both the point (2) high and the point (5) potential low, both instances are characterized with divergences and both future price movements followed the direction of the trend in the technical indicators (the RSI and the MACD in this case), not the direction of the trend in prices themselves.
Has the U.S. Dollar bottomed?

The second chart below is a 3 year weekly chart of the U.S. Dollar. Here are some points of interest on this chart:

  • Notice the red circles that I've added have all coincided with major(intermediate) lows and all have the same characteristics.
  • The green circles I've added all coincide with important highs, with just about the same characteristics among each other here as well.
  • I've also pointed out, by the green trend lines, the divergence that occurred on this weekly chart which also happens to be when the major market indices bottomed in March, 2009. You can see the flight to Dollar safety in action here as people fled stocks.
U.S. Dollar Bottoming

One of my favorite ways to take advantage of the U.S. Dollar rising has been using UUP. The next chart below is a 6 month daily chart of UUP:

  • I've added the same trend lines her to display the divergence that has occurred.
  • It's interesting to note how volume has occurred recently. Just before November, an attempt to move higher was accompanied by an extremely large volume day, only to reverse the next day. Then, in early Novemebr the opposite occurred - an extremely large volume down day, and then a reversal. The lesson here in particular, is that extreme volume days are potentially an end to a trend with a reversal coming, so be alert.
  • Finally, notice in mid-November that prices broke up through the 50 day MA and then pulled back and re-tested the 50 day MA from the UPSIDE sucessfully. This pullback was also accompanied by decreasing volume. These are all Bullish signals.
UUP Daily 6 months

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