It has been a wild summer for the U.S. dollar so far.
And, it’s about to get even wilder…
We turned bullish on the buck in early June – when the dollar was trading near its low for the year, and it seemed like everyone else was bearish.
Then, less than one month later, the dollar was up 3% – an enormous move for a currency. It was trading near its high for 2021.
And, it seemed like everyone had turned bullish. So, of course, we went the other way…
In mid-July, I suggested the dollar rally was over. And, I compared the buck to a horror-show villain who had just staged its last attack.
Today, the U.S. Dollar Index (USD) is trading just slightly lower than where it was last month. But, it looks to me like the decline is just getting started.
Take a look at this updated chart of USD…
The dollar got hit hard last week.
But, it found support at the late June low and then bounced. The pattern now, though, looks like a “bear flag” – which is a sharp drop followed by a weak bounce. This pattern often results in another sharp drop.
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If USD breaks support at the 91.70 level, then the next support line is all the way down around 90.50. That’s about a 2% decline from Tuesday’s closing level – which may not seem like much for a stock these days. But, it’s a wild move for a currency – especially the world’s reserve currency.
That sort of a decline will wipe out the entire June/July rally. It’ll put selling pressure on assets that typically trade along with the dollar – like government bonds and real estate stocks.
And, it will provide a boost to assets that tend to run counter to the dollar – like gold, silver, and other commodities.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Do you agree with Jeff that the dollar is moving to decline even further, or do you think it could still reverse direction?
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