Because it has such massive implications for just about everything, today we are going to review the charts for the dollar index.
Starting with the long-term 20-year chart, the first point to make is that, given the rampant money creation by the Fed and the grim economic and geopolitical outlook for the U.S., it is remarkable that it has held up as well as it has, which is believed to be largely due to debt servicing by horribly indebted foreign countries saddled with massive dollar debts.
However, the BRICS and the Global South are moving away from the dollar at an increasing pace. The U.S.’s huge debts, coupled with the Fed’s manic money creation, will completely destroy the dollar, which will end up like the currencies of Venezuela and Zimbabwe. So, returning to our chart, what is expected to happen is that the dollar breaks down below the support at 100 and plummets, with the first downside target being the support in the 88 – 90 area. However, there may be a near-term rally before this happens for reasons that we will see when we look at the dollar’s shorter-term charts.
On its 5-year chart, we can see that the dollar accelerated into a parabolic blowoff top in 2022 that is thought to mark the final high, the breakdown from which led to a large trading range forming, which has been going on for about 18 months now.
Normally, following a breakdown from such a parabolic blowoff top, a trading range of the type that has just formed is a consolidation that leads to renewed decline, and we can certainly see for fundamental reasons why this would be.
Over the past couple of months, the dollar has dropped back to quite strong support at the lower boundary of the range, which it arrived at in an oversold state with the 6-month chart that we will look at shortly suggesting some sort of rally soon off this support. However, over the longer term, it looks set to break below this support and drop hard. If this scenario eventuates, then it will present a golden opportunity to add to PM sector positions on a dip ahead of renewed advance that is expected to be powerful.
On the 6-month chart, we can see how the dollar has accelerated into a low at the support, where it bounced with its MACD breaking clear above its moving average in a manner that indicates that it has probably bottomed for now. It retreated back towards this support last week, with Friday’s candle suggesting that it is making a small Double Bottom.
It, therefore, looks likely that it will rally from here, although any such rally is not expected to get very far, probably no further than about 102, before the dollar reverses to the downside again and goes on to breach the support and drop hard to the next significant support in the 88 – 90 zone.
Gold has been added to this chart (and the others) and you can that it is looking a bit frail here after its recent runup. If a short-term rally in the dollar does occur and the PMs get knocked back more it will be regarded as a very good opportunity to buy or add to positions accross the sector.
