The US Dollar Index ($USD) is set up for a short-term bounce.
But don’t get too bullish on the buck just yet. It still has some downside work to do over the next few weeks.
The last time we looked at the dollar, back in mid-December, we noted that the chart had the look of a “head and shoulders” pattern. And that, if $USD broke support at the 93 level, it could quickly drop down to the September low.
That is exactly what happened. Take a look…
Now, with the dollar hitting our downside target and approaching support, it’s reasonable to expect a short-term bounce in the buck. A move back up towards the former support line near 93 – which is now resistance – wouldn’t be too much of a surprise.
But… and this is the really important point… any bounce in the buck right now is likely to be temporary.
Take a look at the MACD indicator at the bottom of the chart. It has been falling right along with the decline in the dollar. That tells us the intermediate-term downtrend that began in November is strong and is likely to continue.
So, following any short-term bounce, $USD is likely to start falling again. And that’s a big problem.
You see, the low in November was the lowest level in $USD in the past three years. Breaking below that level would be a major breakdown.
Just look at this longer-term chart…
You can see how important the first line of support is for the buck.
Breaking below the 91.50 level brings the 88 support level into play. That would be the lowest level in three years.
So, if you’re tempted to bet on a dollar bounce right now, then go right ahead. Just don’t stay in the trade too long. The intermediate-term outlook remains bearish.
Best regards and good trading,
Today, readers mull over Jeff’s latest blog trading action…
With gold moving well and miners lagging, I was nervous. But with it moving sideways, I am encouraged. Crept up on $1,296 and didn’t reverse. Next is $1,310. We are set up.
Everyone has a foot out the door. Will it bust loose and then a nasty shake? Guess we will find out!
Been watching GE since you mentioned it as well. Looked really good and down a bit premarket looked better. Bought the calls you recommended this morning and sold puts earlier. I think people are going to like this if they watch carefully.
– Marty B.
Just wanted to let you know I think you’re right about GE. Due to family activities, I wasn’t able to enter the position until earlier today but that actually worked to my advantage and I got in at a better price, so I had a small gain at the close of the market today.
Your recommendations have done well for me this past year and I am anticipating an even better year in 2018 as I think it inevitable that volatility returns to the market.
– Scott S.
And respond to another of our popular holiday features…
I enjoyed your succinct observations on the Social Security system. I am retired now for two years and considering what I paid into it over the last 45 years, my SS income almost seems like a slap in the face.
The problem is that Social Security is a massive, government-sponsored Ponzi scheme. Current beneficiaries are supported by current employees’ FICA withholding. As a Baby Boomer, there are not enough Millennials and Gen-Xers working to support the larger Boomer demographic.
I wasn’t counting on Social Security in retirement, but I realize that I am likely the exception, rather than the rule. Thanks for your part in helping me grow my investment portfolio.
– Mark E.
As always, feel free to send in your trading stories, questions, and suggestions right here.
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