Dollar Finally Breaking Down
July 20th, 2009WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
After several weeks of sideways slop, the USDX is finally falling over. While it still needs to clear a couple of lows to the downside to really build some momentum, I thought I’d provide a big picture look at the challenges ahead for dollar shorts and gold longs.
In summary: If the dollar takes this leg down, don’t get too happy just yet. While there’s some decent money to be made between here and the low 70s, I’d get really flat around 71 on the USDX. The nightmare scenario is that gold closes in on $1032, but doesn’t clear it, and then USDX somehow bounces around 71. Strong pivots off these levels would be an “oh shit” moment for gold longs (double top) and dollar bears (double bottom).
I’m not saying that gold is going to double top and that the dollar is going to double bottom, but that’s a very possible scenario for gold longs and dollar shorts. The Them must keep gold under $1032 and the USDX above 70.792. Those are probably “THE” technical support and resistance levels of a generation. Those silly numbers mark out the lines between condition yellow and condition red in the international economic system. The people who run the show will do anything to keep those numbers intact. Nothing—and I mean nothing—will of off the table if USDX gets down around 71 again.
As usual, I won’t be selling even one gram of gold. However, I might consider buying some puts on GLD as a hedge if we approach the event horizon of $1032/70.792.
I’ll start monitoring the data very closely if we get near “THE” numbers. I can tell you now, the thing to look for will be divergence patterns on indicators such as slow stochastic, RSI and MACD in the daily and longer intraday periods. Perhaps, either gold or the dollar will lead the way through the corresponding critical level, giving us a hint as to what the other is going to.
The next few months are going to be extremely interesting.
