Is the US Dollar Overbought?

There are many distractions to take our eye of the US Dollar at the moment, the biggest one being the plight of the Euro closely followed by the plight of the British pound. Sooner or later the focus will return to the dollar as the investment community becomes immune to the constant stream of bad news emanating from the fatally wounded eurozone.

We could well be too early in making this call but it appears to us that the dollar may now have run its course and will now look to take a breather. As we can glean from the chart, over the last two months the Euro has been under the gun, resulting in a rally for the USD as the preferred currency. Also note the gap that is opening up between the dollar at '88' and the 200dma, which stands at '79'. The RSI, MACD and the STO are bouncing along at the top of their respective ranges and sooner or later they will return to somewhere more in the middle of their ranges. So the dollar now appears to be a tad overbought, in our humble opinion.

If we are anywhere near correct with this view and the dollar starts to correct we could see various money managers looking to lock in their current profits and place their bets in another asset class.

Three points if you can guess which one!

Have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

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Comments

[David]

Well you have two solid candles for two days in a row. I would see if a trend reversal results in a lower high before committing myself to a short sell on the index. I would place my buy stop at the higher high of either that day or the day before after getting a solid candle after the lower high reversed. Does that make sense?

[David]

As to gold, it looks like we are going to get a narrow range solid candle for today. Sellers have predominated, though I did see huge volume spikes at the lows of the day for GLD. Narrow range candles portend spikes the next day. I would not bet on the move the next day if I were bullish. Good to stay in cash.

[David]

Well I called the spike in gold today. I just didn't know which way the spike would go. :)

[Gold Prices]

David,

A pal of mine has a saying:

My boat came in but I was waiting at the airport!

[David]

That's funny. :) Well, I'm going to brush up on my technique. I just bought a book by Steven Nison on Japanese Candlesticks from Amazon. I watched a DVD by Oliver Velez on swing trading. It explained a lot.