USD Outlook: Long Term Bullishness

It's early in the morning in Delray Beach, Florida, and you know what I did? I made a cup of Jamaican Blue Mountain coffee (since I'm boycotting any unnecessary spending on pricey take-out coffees) and took a look at one of my favorite currencies in the universe – the U.S. dollar.

Now if you remember, I've talked about the dollar before. And I guess you can call me a "dollar bull," if categorizing me makes you feel better about the "potentially blasphemous" words I'm about to speak.

On that day, the U.S. Dollar Index was trading at 85.71. On Thursday, it was trading at 88.

Had you followed my previous advice and dove into the forex markets, I bet you would have made out.

So heed my advice if you dare and take a look at this chart below…

click to enlarge

This is a weekly chart of the U.S Dollar Index ($USD), which tracks the dollar's strength versus six major currencies (including the euro and yen).

The first thing to notice is that the Slow Stochastic (at the bottom) and the RSI (at the top) can stay overbought for months at a time. This signals just how strong the dollars uptrend is.

Typically, stocks and currencies fluctuate from overbought back to oversold fairly quickly.

The next thing to note is that the dollar has run up to its November highs of 88.

If the dollar can break above these highs we could see it trading at 92 – 94 by next month.

So let me repeat the same recommendation I made 8 days ago:

"For you forex bugs out there, taking a long-term bullish position in the dollar should pay you greatly by the end of the year."

Disclosure: no positions

Comments

[ROLEXDAYTONA:]

USD goes straight to parity with the EUR, it may take shorter than you think.

Feb 20 06:30 AM

[Lsente:]

You've got divergence across the board, tread lightly.

Feb 20 07:07 AM

[know nothing:]

I wouldn't touch it with a 10' pole! When the usd fails at that line it will be the first leg down. Plus , the usd is over bought, and the slow K line just crossed the slow D line, this indicates a sell signal.

Feb 20 08:27 AM

[Not_Superman:]

Okay, so the dollar index is sitting exactly at a strong resistance, the RSI is headed into the overbought territory, the slow stochastic is already glazing 80, and you're giving a buy signal. Makes perfect sense.

Feb 20 10:04 AM

[jayminho:]

usd bullishiness is due to all matrix getting money out of emerging market to return to their motherland. hail US!!!

Feb 20 12:15 PM

[notagoldbug:]

sell all currencies and buy GOLD

Feb 20 12:50 PM

[know nothing:]

Has anyone been watching the dollar today?


On Feb 20 08:27 AM know nothing wrote:

> I wouldn't touch it with a 10' pole! When the usd fails at that line
> it will be the first leg down. Plus , the usd is over bought, and
> the slow K line just crossed the slow D line, this indicates a sell
> signal.

Feb 20 01:55 PM

[sheridan:]

I like the contrarian viewpoint and the trend is up. However, William Ekhardt has stated he believes stochastics to be worthless as a technical tool.
I doubt anyone on this board or site can touch his record or research capabilities. Jim Rogers, George Soros and Faber all say the dollar is "doomed" or "like GM a short at any price" so I guess its really a matter of your time horizon.

Feb 21 04:10 PM

[polyanna:]

I'm a macroeconomist so don't go in for the technical charts and such. From a fundamental viewpoint, the USD may get support in the short and medium-term, but as we move toward the end of the year and an appetite for risk returns, investors grow increasingly nervous about the U.S. government's ability to fund its massive debt, and countries like Russia and China move away from USD backed assets and into IMF bonds, the USD has no where to go but down. It is well over price against the Euro.

Jun 17 09:35 PM