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The day before the 2012 U.S. Presidential election, the U.S. dollar (NYSEARCA:UUP) climbed above its 200-day moving average (DMA), a critical resistance that I assumed it could not crack in the near-term thanks to QE3.

The dollar cracks critical resistance at the 200DMA....but can it follow-through?

The dollar's stubborn resilience has put a halt in the dual breakouts in gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) although both precious metals ETFs experienced impressive bounces off 200DMA support.

After stalling at 2012 highs, GLD erased most of its gains from the September breakout

Close-up shows GLD bouncing near perfectly off 200DMA support but overhead resistance looms

SLV gave up all its gains from the September breakout before bouncing off its 200DMA

Notice the picture-perfect bounce off 200DMA support

It is probably not a coincidence that both GLD and SLV retested their respective 200DMAs as the dollar retests its own 200DMA. To-date QE3 has not performed as expected as it trades about 1.3% above its QE3 price, the closing price of the dollar BEFORE QE3 was announced. The stock market has also stalled as the S&P 500 (NYSEARCA:SPY) rests directly below its QE3 price.

The S&P continues its pivot around its QE3 price

In other words, the QE3 reference price continues to loom large in the background of financial markets. So, it looks like the dollar's vote is in and it is ready to run even higher. However, if the dollar does continue to rally from here, the time the index spent under the 200DMA resistance would be the second shortest since the dollar's secular decline ended in 2008. The shortest period was a 2-day breakdown in late October, the last time the dollar index traded below its 200DMA. The breakdown before that kept the dollar index below its 200DMA for a year (between Septembers in 2010 and 2011). Breaks below or above the 200DMA have had lasting impacts on trading in the dollar index, so is this the time to bet that this time is different?

In fishing around for reasons to convert into a dollar bull despite QE3, I took another look at a chart of central bank balance sheets presented last week by Philip Lowe, Deputy Governor of the Reserve Bank of Australia in a speech titled "Australia and the World."

Central Bank Balance Sheets (Assets as a percent of GDP)

Note how the Federal Reserve has suddenly become the laggard of the major central banks currently exercising some form of quantitative easing. Since 2011, the Federal Reserve's assets as a percent of GDP have actually flattened out. Of course, the out-performance of U.S. GDP growth versus growth in Japan, the eurozone, and the United Kingdom partially the Fed's lagging position. All else remaining equal, this chart demonstrates that the Fed has a lot of room to continue expanding its balance sheet in an attempt to soften the dollar. Indeed, in a recent discussion with reporters, San Francisco Fed President John Williams (voting FOMC member) reaffirmed that he thinks the Fed should buy at least $600B in bonds during QE3. With U.S. GDP standing at $15,776B, this bond buying represents just another 3.8% of GDP, still well-behind the other major central banks depicted above. Thus, whether the dollar falls over time in the face of this full-court press will likely depend a lot on what happens with growth and QE programs in Japan, the eurozone, and the United Kingdom.

The resolution of the next direction for the dollar may take a lot more time. After all, it is almost two months since the Fed announced QE3, and the dollar index has not wandered far from its QE3 price either upward or downward. In the meantime, while I am bracing for an extension of the dollar's current post-QE3 rally, I still favor staying in gold and silver in preparation for the Fed eventually succeeding in pressing the dollar index back down and then triggering the next phase of on-going competitive devaluations in major currencies. Lasting trends in currency pairs should thus continue to prove elusive, necessitating an on-going focus on short-term trading over longer-term trading.

Be careful out there!

Disclosure: I am long SLV, GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: The Dollar's Vote Is In And Appears Ready To Run Higher