The flight to cash has pushed the US Dollar up by around 10% since mid July 2008 and to within one point of its major resistance level on the US Dollar Index (EOD) INDX.
From the chart above we can see that the '80' level was previously the support level for the dollar, once penetrated it becomes the resistance level. Should the dollar break through this resistance level it could go a lot higher. Taking a look at the technical indicators we can see that the RSI, MACD and STO are at the top of their respective overbought ranges. This normally suggests that this mini rally has ran its course and the dollar should at least pause for breath.
However these are not normal times as evidenced by numerous factors including the credit crunch, which is not over yet, the spot light just moves from one troubled financial institution to another. We are also heading into the last furlong of the race for the presidency and as we all know the picture must look rosy in order to give the incumbent party another shot at holding power. So a strong dollar and a steady stock market are the order of the day from their perspective.
What puzzled us today is that the dollar was not pushed straight through this hurdle in order to keep the momentum going and deal a hammer blow to gold bugs around the globe. Maybe we speak too soon but the dollars rise was suspended as it took a look at the hurdle in front of it. We know that this is only one point on a chart and cannot be extrapolated to produce some meaning full conclusion. However, some of the faster moving traders must be considering taking profits from the dollar at this point, which could be the pivotal point for a reversal in the dollars progress. After all the fundamentals for the dollar are still deteriorating and the outlook remains gloomy, in our humble opinion.
Should this be the case and the dollar re-commences its trek south the effect on gold and gold stocks could be electric! It’s said that the time to buy is when there is blood in the streets. The question is have we got the guts to take advantage of this opportunity if that is what it is?
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