The U.S. dollar has held up better than expected, says technical analyst Clive Maund, as he discusses its downside potential.
While the dollar has held up better than expected in the recent article “The Sun Rises on the Precious Metals Sector” in that it has not continued to drop, it hasn’t risen much either, and what rise there has been has significantly unwound its earlier oversold condition, which, of course, has opened up downside potential again. We can see all this on the latest 8-month chart for the dollar index shown below. While the most optimistic interpretation of this chart is that it is forming an intermediate base here and that the still rising 200-day moving average some way above indicates room for a sizeable rally, the break below the red trendline a month ago is still viewed as a bearish development, especially as until now it has been forced lower at an accelerating pace by the parabolic downtrend shown, and we have seen a bearish moving average cross late last month. In any event, and regardless of whether it breaks higher or not, there is quite heavy resistance immediately above, at the parabolic trendline, then the red downtrend line almost at the same level, and above that towards the support level in the 98.5 area which having been breached a month ago is a source of resistance.
The following text written with respect to the 4-year dollar chart is taken from the report “The Sun Rises on the Precious Metals Sector” as it is unchanged. . .
On the 4-year chart for the dollar, we can see how the it broke out above resistance to new highs on euphoria over Donald Trump’s election victory, but it was subsequently unable to hold on to these gains, and has slumped back into the large trading range, a bearish development, particularly as the entire pattern from early 2015 now looks like a giant bearish Broadening Top. Having broken down back into the pattern and below its 200-day moving average, which is rolling over, it now looks like it will continue lower to the key support level at the bottom of the pattern, as a 1st stop, despite its already being significantly oversold. If it breaches this support there is some support lower down at the red trendline, which marks the lower boundary of the Broadening Top, but if it breaks below that things could quickly get a lot more serious.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.