We take a look at our updated dollar charts: $DX_F $UUP $GLD
We’ll start with the $UUP dollar proxy daily chart. There is a lot of information on this chart and we’ve posted it several times. The dollar had a decent sized short squeeze rally during most of December that has run out of gas so far this year. This week we saw a major gap down on the dollar to start the week. This created an ominous island reversal pattern on the shorter term daily chart to the far right. The topping pattern itself was a 7 point reversal pattern (bear flag) as Rambus has noted. The technical indicators are almost all bearish on this chart. Make sure to look at the RSI and MACD in particular. Also the 50 day moving average (dma) is getting a hard test today.
The short squeeze was impressive but the net result are fresh longs that are now trapped on their ‘island of pain’. Think of these as the “fresh meat”. The weekly chart ($UUP - Weekly Chart), shows the massive double top that unfolded the last two years due to the extraordinary deflation scare which world governments have embarked on a reflation to avoid. The Slow STO on the weekly offsets the bullish MACD on the chart. The weekly RSI has rolled over and could make a second low. There should be solid support around the 21.50-22.00 level and we expect to see it tested. This could lead to the dreaded “triple bottom” which statistically is not a good bet in the bulls’ favor. This will lead to a larger head and shoulders topping pattern (consolidation) if the all important neckline cannot hold.
Here is the $USD Monthly Chart for perspective. You will notice the huge bearish descending channel the past two decades. This is the overall trend and it trumps short term gyrations. We think the bottom channel will eventually get tested as the USA depreciates away its foreign debts and investors lose faith in the Federal Reserve’s ability to control inflation expectations.
