Thursday, April 21, 2011

Friday Dollar Analysis

Here is what I wrote about the dollar last week:

Adding all of these factors together, we get a chart that is fundamentally very bearish in multiple time frames. The multi-year chart shows prices breaking lower from a long consolidation pattern, the 6-month chart shows prices in a lower low, lower high structure and the technical indicators are all bearish. This is backed by the fundamental background.

1.) Other countries are raising rates, making their economies more attractive as a place to park short-term investments.
2.) It appears that US growth is slowing. This is adding to the bearish analysis.
3.) The long-term budget situation is still at best murky.
4.) There is concern about inflation, and whether or not the Fed is behind the inflation 8-ball.

However, over the next week or so, don't be surprised to see the dollar rise. Why?

On the chart notice that prices have gapped lower on slightly heavy volume. A rebound into the EMAs is possible at this level.

The 4-year, weekly chart of the dollar shows the market has clearly dropped below the 22 price level, which had provided technical support for the last four years. Also note the weekly EMA positions -- the shorter EMAs are below the longer EMAs, prices are below all the EMAs and all are moving lower. This is the most bearish orientation possible.

The daily chart is also extremely bearish. All the EMAs are moving lower, the shorter are below the longer and prices are below all the EMAs. While we should expect prices to rebound in a standard move, expect to see the EMAs provide upside resistance.

The technical position is still very bearish as well. The A/D and CMF show money leaving the market and the MACD shows no momentum whatsoever.

Given the above charts, and the fact nothing has fundamentally changed in the big picture for the dollar, my assessment of the dollar market for the coming week is the exact same as it was for last week: more moves lower with rebounds into the EMAs providing upside resistance.