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US Dollar Bull Pause?

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The recent bounce up in the US Dollar bull has some wondering whether or not the dollar is merely pausing before it runs even higher in price.

Terry Kinder precious metals analysisBullion.Directory precious metals analysis 15 October, 2014
By Terry Kinder

Investor, Technical Analyst

The US Dollar bull has appeared quite strong, climbing from $78.90 back in May to $86.74 late last month. Recently the DXY paused its march higher, but is it resting before moving up or is the dollar on the downhill side of its move?

Nobody wants to be on the wrong side of the US Dollar bull.

US Dollar Bull: No one wants to be gored by a bull

US Dollar Bull: Don’t get on the wrong side of a bull.
Image: morgueFile

However, it isn’t always easy to know if you are on the right or wrong side of a bull market. In the case of the US Dollar bull the price action can be somewhat confusing. To help figure things out, we’ll take a look at the daily, weekly and monthly charts of the US Dollar Index (DXY). We will begin by looking at a chart of the daily DXY.

Judging by the daily DXY, the US Dollar bull has lost a little momentum. The dollar price briefly rose above the price trigger line labeled A, but then fell back below it which can be seen as sign of weakness.

US Dollar Bull: Looking a little weaker

US Dollar Bull: Looking at a daily chart of the DXY it appears that dollar momentum to the upside may be weakening somewhat.

At the same time, the Starc Bands, labeled B, began to turn downward and the Starc – (minus) band fell out of the Keltner Channels shaded in blue.

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This is another sign of downward price momentum. Confirming dollar weakness is the bearish MACD crossover, declining RSI, and the falling KDJ.

On the weekly chart, the US Dollar bull looks stronger than it does on the daily chart.

The dollar price crossed a little above the price trigger line labeled A, but fell back beneath the line this week. Meanwhile, MACD labeled C remains at a very high level. However, RSI labeled D and KDJ labeled E are falling.

US Dollar Bull: The weekly dollar chart is starting to look a little weaker, but not much

US Dollar Bull: On the weekly chart the dollar looks a little stronger than it does on the daily chart.

The final piece of the US Dollar bull puzzle is the monthly dollar chart.

The monthly dollar chart has quite a bit going on so we will break it down into bullet points to make it as easy to follow as possible.

  • A – US Dollar price peak at over $160.00. This corresponds to the peak in RSI right around 1985;
  • B – Bottom in the dollar price which corresponds to a low in the RSI;
  • C – Another peak in the dollar price corresponding to an elevated RSI level;
  • D – A low point in the dollar price matching another low in the RSI;
  • US Dollar Bull: There is a lot happening in the monthly dollar chart

    US Dollar Bull: The monthly is the most complex and interesting chart out of the charts we have seen so far.

  • E – Price resistance line dating back to around 1985;
  • F – Price resistance level at $86.84;
  • G – Price trigger line based on smaller Andrews’ Pitchfork;
  • H – MACD bullish crossover;
  • I – Overbought RSI;
  • J – Large descending triangle (black lines);
  • K – Small triangle outlined in red;
Well, that is a lot to take in, but here is what’s most important:

  • RSI is at a very high level. This could last a while. However, note that high prices coupled with high RSI levels at A and C were followed by low prices and lower RSI levels at B and D respectively;
  • The two triangles J and K are worth keeping an eye on. The triangle labeled J is a multi-decade descending triangle. Given the overall downward trend of the dollar, it is a reasonable assumption that the price will fall down and out of the big triangle ending the US Dollar bull in the not too distant future. Logically that means the dollar price will first fall out of the smaller red triangle. That too seems logical since the dollar price breaking to the upside out of the red triangle would also mean price would likely have to take out the almost 30-year price resistance line labeled E;
  • Should the dollar price manage to break above price resistance line E, then we might have to revise our thoughts and consider the possibility of a continued and potentially stronger US Dollar bull market. RSI could stay elevated for the better part of several years, but once it begins to fall we would expect a sharp decline in the dollar price.
  • Conclusion:

    The US Dollar bull is at a critical point in the cycle. We should know fairly soon whether the dollar will break through the almost 30-year price resistance line or not.

    Keep an eye on the daily, weekly and monthly US Dollar charts. Their price action over the next days, weeks, and months will determine whether the US Dollar bull continues and will also strongly influence stock prices as well as precious metals.

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