Last month, I wrote a post entitled, “A Funny Thing Happened on the Way to the U.S. Dollar’s Demise,” which argued that the U.S. Dollar was shaping up to defy convention wisdom that it is a doomed currency. We know that the Dollar has failed to make fresh lows since early-2008, despite plenty of fits and starts along the way.
Obviously, the long-term trend is still down, as you can see on the second chart below of the monthly timeframe. And yet, I see plenty of traders constantly looking for negative diveregcnes in the Dollar as an indication to short it again. When it becomes so obvious and popular to state that a currency must be doomed, especially the world’s reserve currency, it may very well be correct to take the other side of the trade.
Beyond contrarian thinking, though, a look at the daily timeframe of the Dollar Index chart reveals a textbook bull flag after its recent rally, which is exactly what Dollar bulls want to see. True, it is still very early if the Dollar is going to actually climb the famed wall of worry for a bull market. However, I am impressed with the recent consolidation as the Euro and Aussie saw oversold, short squeeze bounces.
Of course, even if the Dollar continues to strengthen and reverse its long-term downtrend, there are still important issues to be resolved, namely whether the now-obvious inverse relationships between the Dollar and risk assets will continue to persist, or whether the pretty tight correlations will be finally broken.
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Sure looks like a major long-term bottom to me…
Indeed, Scott!
That door kick will be handy when we meet Sir chessNwine.
Door picture is actually really useful information