Thursday, April 28, 2011

The Dollar Falls Out of Bed

In my last look at the Dollar Index, I stated: "The trend is still down, and the technicals would suggest that we will be visiting the all time lows last seen in 2008 at some point in the near future.  At that point, I surmise things will start to get interesting."

Things are playing out as expected as we can see from the weekly chart of the Dollar Index shown in figure 1.  Closes below the lows of the red positive divergence bars have lead to an acceleration of prices lower as those traders who were long and expecting a reversal close their losing positions.  This is what has happened at points 1 and 2 on the chart.  

Figure 1. Dollar Index/ weekly
At point 3, prices have essentially "fallen out of bed".   The bounce has failed and support has failed and prices have just simply rolled over.  I would expect another acceleration lower as all buyers simply give up, but there won't likely be grave concern until the 2008 lows are taken out.

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