Thursday, May 26, 2011

Friday Dollar Analysis

Last week, I wrote the following about the dollar:
Right now, we're in the middle of a technical bounce higher so far has not disrupted the overall trend. A strong move above the 50 day EMA over the next week or so will change that. In addition, if we see important technical crossings (the 10 or 20 moving over the 50) a re-evaluation will be necessary as well. However, if you played the technical bounce, I'd take money off the table now and wait to see how the market plays out. Ultimately, I'd still be looking for a longer shorting opportunity.
Let's take a look at some of the charts:

Something I did not consider in my analysis last week (and which was very short-sighted of me) was the above chart, which shows the long-term downtrend of the dollar. Prices hit this level and then moved lower.

On the shorter chart, notice that prices did move above the 50 day EMA, but his resistance at two levels. They have since move back down to the EMAs for support. However, the 50 day EMA is now a little bit better than horizontal and the shorter EMAs are about to give a buy signal.

The A/D line has dropped a bit and the CMF is showing a negative reading. Also note the MACD is weakening.

While prices have moved above the 50 day EMA and the shorter EMAs are moving higher, I am skeptical of the dollar making a big move up at this point. GDP reprinted at the 1.8% level -- which is pretty weak -- and there is little reason the Fed will raise rates anytime soon. I would only be a buyer if prices moved above the longer term moving average. If prices move below the EMAs, I'd wait for a rebound into the EMAs before shorting.