About That Dollar Bottom – Are We There Yet?

About That Dollar Bottom – Are We There Yet?

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 trade-futures.com.  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

Source: StockCharts.com

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!