With most observers either negative or very negative on the U.S. Dollar, we wonder whether a counter-trend rally in the greenback might be in the offing. The long-term trend remains down, but a descending wedge formation (a technical configuration which usually resolves to the up side) is forcing us to consider what could happen next for the buck.
The WSJ notes this morning that one source of pressure on the dollar is US investors penchant for overseas bourses: "As U.S. investors chase profits overseas, there may be an unintended
consequence closer to home: pressure on the American dollar."
After the Bank of Japan left rates unchanged last week, the yen fell versus the dollar (Japan’s 0.50% rates are the lowest in the world). Some traders have suggested the euro has topped out for now, due to technicals and position-trimming."
Carl Swenlin’s chart below shows a short term buy signal. Note that the price index has broken above the its short-term declining trend line.
Swenlin notes: "Bottom Line: Let there be no doubt, the trend is down in both the medium- and long-term (our trend model is still bearish on the dollar), and it is too early to assume that a change in trend is taking place; however, there are plenty of reasons to begin nursing some positive expectations."
DOLLAR TRYING TO TURN UP
DecisionPoint, May 20, 2007
U.S. Investors’ Overseas Bets Dent Greenback
Quest for Stronger Gains Leads to Weaker Dollar; A Self-Fulfilling Cycle
WSJ, May 21, 2007
Dollar Looks Set to Move Up
WSJ, May 21, 2007
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