Thursday, 17 September 2009

Dollar’s rally is just about to run out of steam!

Even bear markets have rallies. But why would I refer to the dollar’s recent rally as a “bear market rally” and not a rally into a “new trend”? Because there is no technical indication that has surfaced to think otherwise Several things worth noting on that chart of the U.S. Dollar Index:

The pair is still downtrending as shown by it trading below BOTH the 50 and 200 Simple Moving Averages. Also, the MACD lines are below the zero line (red boxed area) and the Slow Stochastics are just about to go into the “overbought” territory once again as the dollar approaches its 50 day SMA resistance area.

There’s an old Wall St. saying….”trade the trend until it ends”. However, do realize that there are rallies in every bear market (downtrend). These are to be expected. After all, they usually can’t go “straight down”. Therefore, upward corrections are involved…much like the pull backs that happen within an uptrend.

Therefore, there’s no reason to see this as any other thing unless this technical picture changes. So far it has not. So I’ll stick with the trend “until it ends”.

That means, it’s probably better to be a buyer of strong currencies as these dollar rallies happen and start to roll over once again. Two of the top “strong currencies” right now are NZD and AUD…so being a buyer of NZD/USD and AUD/USD after these dollar rallies (which cause pull backs in these pairs) is to be favored until such time that there’s an actual re-emergence of a “dollar uptrend” which I think is a long ways off.

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