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Has the Value of the US Dollar Peaked?

Over the weekend, there were a lot of opinion pieces about the state of the US Dollar. Some were very pointed in their belief that the US Dollar has peaked, while others were presaging its demise. This is because China can do things with credit that the US can’t. A few laid out very specific reasons why last week’s high may very well be more than a local peak; remember the old trading saw, “technicals precede fundamentals.”

Is there any truth to all of this? And if so, which way are the technical signs pointing – if technicals indeed precede fundamentals. First, let’s look at the six-month chart:

Source: Fidelity.com

Well not much help there, that’s just a classic steady run-up chart. The very basic technicals — volume, RSI, 100-day SMA — aren’t saying too much other than we probably just hit a local top. RSI is falling fairly fast right now, which is typical behavior after either a short- or long-term top.

Let’s try a longer-term chart (on the Next Page):

Source: Fidelity.com

Well, your Gold Enthusiast looked at the one-year chart and it didn’t say much more. Also, the two-year chart isn’t quite telling enough of a story either. So, unfortunately, we’re into a five-year chart. In general, your Gold Enthusiast doesn’t like five-year charts for two basic reasons: One, the candles get so small they’re hard to see with aging eyes; and two, who the heck thinks conditions are similar enough over five years so, the chart actually says anything valid?

In response, we’ll have to concede that we are still in the longest bull run in US stock market history. So conditions really have been similar until now over the past five years. What we’re looking for is the end of this period, so it does make sense that we look at a five-year chart, because when things change the chart will show it.

Unfortunately, even this chart doesn’t spell out an impending doom or massive opportunity. The USD isn’t at an overall peak even for two years. In fact, it’s bouncing off the secondary peak below the highest peak. So, the farthest out on a limb you can go with basic technicals is that it’s too early to tell if this is “the last” peak, or if this is just another wave in the trend.
Things we’ll be watching: The Euro, since it makes up over 50% of the US Dollar index — The EU and Italy are locked in battle right now (darn deficit spending!); any move by China toward a hard currency, i.e. backing yuan/RMB with gold; any sudden run-up in interest rates. Those are probably the most significant canaries in this coal mine.

Signed, The Gold Enthusiast

DISCLAIMER: No specific security was mentioned in this article. The author is long the gold mining sector through a small portfolio of ETFs and specific mining stocks.