Thursday, June 9, 2011

Friday Dollar Analysis

Last week I wrote the following about the dollar:
This week, we learned that the macro picture for the US economy is weakening as well -- the ISM number dropped, Case Shiller moved lower and initial claims are still above 400,000. There is little reason to see the Fed raising rates anytime soon, meaning the interest rate play won't exist for the dollar. In addition, the weakening economy means the dollar will lose its attractiveness as an investment.

I'd wait for a price rebound into an EMA, and then short.
Let's look at a few charts:

The long-term charts show a clear downtrend -- lower lows and lower highs. Also note the 200 day EMA is decidedly negative as well, as are the shorter EMAs.

The shorter charts shows a decidedly negative picture. All the EMAs are moving lower, and the shorter EMAs are below the longer EMAs. Also note prices are below the EMAs. At the same time, notice the volume bars, which are larger indicating there are more trades occurring.

While prices have rebounded into the EMAs, the increased volume since the latest bottom indicates the chart may be in the middle of a selling climax. That is giving me pause for now, as we may be seeing a change in overall momentum. Although prices have rebounded into the EMA, I would wait until prices move below previously established lows before shorting. At minimum, prices could be starting to form a sideways consolidation pattern -- probably a triangle consolidation pattern.