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U.S. Dollar Begins Counter-Trend Rally

May 07, 2018 9:40 AM ETUUP, UDN, USDU
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  • The dollar has lost nearly 15% of its value versus many foreign currencies over the last year and a half.
  • The main trend will remain lower for the dollar for the foreseeable future.
  • When multiple resistance levels fall within a proximal distance, this gives us a high-probability target zone for a top to form.

By Christopher Aaron

The US dollar has begun a counter-trend rally which should last for several months. As precious metals investors, why should we care about what happens to the dollar?

The coming advance may put downward pressure on the precious metals throughout its duration. Despite increased use worldwide of alternative currencies such as the Chinese yuan and special drawing rights (SDR’s) from the World Bank in recent years, the U.S. dollar is still to this day considered the world’s reserve currency. And while, from the country’s founding in 1776 through the abolishment of the Bretton Woods Agreement in 1971, the U.S. dollar was officially backed by gold, since that time the U.S. currency remains unbacked by any tangible commodity. In essence, gold and silver now serve as competing currencies to the U.S. dollar.

We need to look no further than the relative price action between gold and the greenback over the preceding 18 months to see the inverse relationship. While the negative correlation between the two assets is not perfect, it is strong enough in its impact that as precious metals investors it would behoove us to regularly monitor the relationship:

Bullion Exchanges A

[All charts courtesy stockcharts.com.]

U.S. Dollar Breaks Downtrend

Below we show the U.S. dollar index, which measures the dollar versus a basket of international currencies, from 2014 to the present. From the peak at 103.5 down to the recent low of 88.2 on the index, the dollar has lost nearly 15% of its value versus many foreign currencies over the last year and a half. Yet importantly, note how the dollar has broken higher from the nearly 18-month downtrend (dashed blue line) just last week, which defined the trajectory of the currency’s weakness since the top in December 2016:

Bullion Exchanges BThis trendline break is significant. When a clear trend which

This article was written by

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Bullion Exchanges is a trusted Precious Metals Retailer located in the heart of New York City’s Diamond District. At Bullion Exchanges, we have a wide variety of products including but not limited to metals that range from the ever-popular gold and silver to the newly emerging platinum and palladium. We offer a wide selection of products appealing to 1st-time buyers and long-term collectors.

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