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The US Dollar’s Next Move
The Smart Profits Report: Issue #361
Wednesday, October 11, 2006
The US Dollar’s Next Move: Ignore The Dollar Doom Merchants - The Greenback’s Got Room To Run
By D.R. Barton, Jr.
Advisory Panelist, Mt. Vernon Research
Dollar bashing has certainly been a particularly popular pastime over the past couple of years.
Even the world’s best-known investor, Warren Buffet, has taken on the greenback in recent years - and lost.
So ignore the naysayers: The dollar isn’t dead yet. And it won’t be for a long time as we watch for the US dollar’s next move.
Backing Up The Bullish US Dollar
To back up my bullish theory, I put out a U.S. dollar-based recommendation in the recent October Xcelerated Profits Report issue. This was because as the issue was being broadcast around September 22, the dollar had just broken and held an important trend line - as you can see from the last arrow in the chart below.
At the same time, the important “Commitment of Traders” Report highlighted some key buying trends among Commercial Traders. It was clear that sentiment was at a turning point - and so far, the dollar has performed true to form.
The all-important questions now are: What’s next for the greenback? Will the rally continue? Let’s turn to the charts for some clues…
Will the Dollar Stay Strong?
The first thing to notice in the chart below is that since early August, the dollar has consistently made a string of “higher lows.” This is a very bullish sign, especially since it’s also made “higher highs” over that period. This is the very definition of an uptrend (higher highs + higher lows = definitive uptrend).
However, while that certainly bodes well for a continued rally, there is one note of caution: The key high that formed in July could provide some short-term resistance, especially since the currency has moved up fairly fast in the last few days.
But if the U.S. dollar can close above that summer high of 87.33, it could propel the greenback forward to possibly test its highs set earlier this year.
How To Play The Dollar From Here
So if you want to capitalize on the dollar’s rise from here, what should your next move be?
In my technical opinion, the most prudent play at this point is to wait for it to take a “breather” and consolidate, or see a small price pullback. I almost always favor buying on short-term weakness rather than trying to jump in after the price has just made a strong move in our favor, and end up chasing the asset and paying too much.
Good Trading,
D.R. Barton, Jr.
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Today’s Smart Profits Cribsheet
- Using technical analysis to predict price movements is one of the most powerful forms of studying the markets. We identify something any investor can use in Smart Profits #214, Technical Analysis: Two Simple Tools for Spotting a Technical Trend.
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The Chart of the Week
Back in February, Intel (Nasdaq: INTC) formed a small gap that has yet to be filled. This gap has now formed a key resistance area for INTC’s advance. If we clear this area (which is not what I’m betting), then the next two resistance levels are the boundaries of the big January gap: $23.06 and $25.32.
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