The dollar is setting up for a short-term bounce.
That won’t change the longer-term trajectory for the buck… Which is clearly bearish.
But, if you’re trading assets that tend to run counter to the dollar – like gold, silver, and most commodities – then be prepared for some short-term turbulence…
The dollar has fallen more than 3% over the past two months. That may not seem like much in an environment in which “meme stocks” move 20% in a day, and cryptocurrencies can rise and fall 50% in a week.
But, it’s an enormous move for a currency – especially for the world’s reserve currency.
And, that action has set the dollar up for an oversold bounce.
Take a look at this chart of the U.S. Dollar Index (USD)…
You can see the decline that’s happened since late March. It’s been a steady downtrend – with the chart making lower highs and lower lows.
Recently, though, the technical momentum indicators at the bottom of the chart (RSI and CCI) have been making higher lows. This sort of “positive divergence” is often an early warning sign of an impending bounce.
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The last time the dollar chart showed a similar setup was at the start of the year. The buck rallied about 2% over the next month. That coincided with a short-term decline in gold, silver, and many commodities.
Like I said earlier, a short-term bounce in the dollar won’t change its longer-term trajectory. The bigger picture remains bearish. The Dollar Index is likely to be much lower several months from now. That means gold, silver, and many commodities will be much higher.
But, traders should be prepared for a pullback in those assets.
Since the extent that the dollar’s decline over the past two months has helped support the prices of those assets, a bounce in the buck could have the opposite effect.
Best regards and good trading,
How have you been preparing for a possible long-term drop in the dollar? Have you been following any good commodities?
Let us know your thoughts – and any questions you have – at [email protected].