|
Over the past few weeks, I have been watching the US Dollar getting set for what could be a nice “Christmas rally,” running into at least the first quarter of next year. The Greenback has been working its way into a strong position from which to rise against most of the major currencies.
First let’s take a look at a chart of the Australian Dollar (FXADUS in ProfitSource).
Chart 1
click to enlarge
In Chart 1 above, we can see that the Australian Dollar has fallen from its November 5, 2010 top and at time of writing (Wednesday, December 8, 2010) the Aussie Dollar has formed a Double Top pattern, closing on its low.
In Chart 2 below we can see that the Euro, which has already fallen by a larger percentage than the Australian Dollar and is in a weaker position, rallied up to the price level of a recent low before falling away.
Chart 2
click to enlarge
In technical analysis there is a well known saying “Old Tops become New Bottoms” and this may well be the case with the Euro.
In both of these charts, the US Dollar (US) is the second currency pair, so a falling price in these charts indicates that the US Dollar is gaining strength against these currencies.
In Chart 3 below, we can see that the US Dollar retraced exactly 50% (to the point) of its rally from the November low against the Japanese Yen (FXUSJY in ProfitSource) before rising over 1% and closing near its high of the day.
Chart 3
click to enlarge
These charts are all showing strength in the US Dollar against the major currencies. If you would like to compare the US Dollar to other major currencies, you can check FXUSSF (The US Dollar against the Swiss Franc), FXBPUS (the British Pound against the US Dollar) or FXCDUS (the Canadian Dollar against the US Dollar) in ProfitSource.
There is a lot of talk around about the demise of the US Dollar, however it pays to remember that markets do not move in a straight line. The world does not go to bed one night with one US Dollar buying 125 Yen and wake up the next morning with one US Dollar only buying 40 Yen.
Yes, there will be market crashes where enormous losses are incurred overnight, but these are once or twice in a century. If you look back over the history of any market, you will see that rises and declines in price all take some time to unfold.
I believe the US Dollar is in for some serious pain over the next few years and beyond, however I do think it has at least a rally into the first quarter of next year left in it – possibly even further.
However, when that rally does eventually end and if the US Dollar begins another major leg down, we may all learn the true meaning of the phrase “Global Financial Crisis.”
Be Prepared!
Mathew Barnes
|