The Dollar Isn't Done Yet

The long-term Dollar Index broke below its 7-year moving average in July. The prior two breaks coincided with rapid declines. However, the fundamentals remain solid with most of the world in worse economic shape. The U.S. not only needs to devalue USD versus real assets like gold, but it also needs to devalue more than the rest of the world. The latter part of the story isn't confirmed yet.

Looking at the Dollar Index ETF, UUP, the line in the sand is the $24.25 area, which correlates to around 88on DXY. That's the line in the sand for the greenback. This area was going to be a resistance area and the U.S. dollar is bouncing before moving far into it. If the dollar is turning around, the stochastics should also reverse.

Prior dollar bear markets saw the stochastics locked at the low for an extended period. If the dollar reversed here, the one corrollary period is 1998. The pattern this time is larger in time. A target of 120 is conservative if this breaks back to the upside.

Unfortunately, there remains a strong element of "dollar down, gold up" thinking in the market. Gold shouldn't go down with a rising dollar, especially for the type of dollar rally that is coming (if one is coming), but there remains an irrational anti-dollar bias among many gold bugs. Miners and gold could be dumped again, for how long I don't know because I do expect major currencies blow ups if the dollar decline to this point is a major headfake.

As I said in the prior dollar post, the time is up on the bull market. This is around where it should end timewise. The break of the 7-year moving average is significant until reversed, but the final line in the sand is the 88 area on DXY. A bullish resolution first requires retaking the 7-year MA around the 95 level and negating a bearish cross, followed by retaking the 1-year above 96.