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About That Dollar Bottom – Are We There Yet?

by Brett on October 13, 2010

Many of us here have been anticipating a dollar rally that would kick off an explosive move to the upside for the buck.  Perhaps a short term move, perhaps a more significant event that could bring another wave of deflation to the asset markets (hey, remember deflation?)

I was reading Bob Prechter’s latest newsletter yesterday – he cited just 3% dollar bulls according to the latest data from  This level of extreme bearish sentiment has recently only been observed at significant lows for the buck.

So are we there yet?  Not quite – but the daily chart looks like a move to the upside could be imminent:

US Dollar Daily Chart October 2010


And for a little perspective, I always like to reference the weekly chart.  You’d think the buck was at an all-time low, and heading straight to hell, the way everyone is talking about it.  But in reality, it’s actually well above it’s recent lows:

US Dollar Weekly Chart October 2010

Meanwhile, the precious metals appears to be having some sort of blowoff top to the upside – led by gold’s crazy cousin, silver!

Silver Price Chart October 2010

Who knows where this could end – I mean, it’s called a blowoff top for a reason.  But you’d have to be cautious of a reversal that could be sharper and more violent than the current rise.

For what it’s worth, my commodity brokers in Chicago, which have been recommending a long position in silver since 2008, just issued a short term sell signal, citing these overbought conditions.

In summary, it feels like we should see a reversal in conditions – with the dollar rallying, and everything else likely pulling back.  The length and magnitude of that move remains to be seen!

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King Dollar: “I’m Back, and So Is Deflation!”
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