Friday, December 04, 2009

It Might Be Time To Buy The U.S. Dollar



I have been patiently waiting for signs of a bottom in the dollar and I think now may be the time. Above is a weekly chart of the dollar going back about 2 years. As you can see the dollar has tested a very significant support area from June of 2008. At the moment it appears that the dollar is holding this level.

This week the dollar put in what is known as a bullish engulfment pattern which is a reversal formation. The fact that this chart pattern formed at a significant support level helps increase the odds of a rally to take place in the weeks to come.

In the lower panel is the MACD indicator which has just issued a bullish crossover buy signal. Weekly MACD signals are very significant because they identify long term trends in momentum. What I like about this particular signal is that it is very timely meaning that we are getting a buy signal at the lows rather than weeks later after the market has already rallied.

Here's how I will play the dollar. If the high of this week is taken out next week, I will buy the dollar (UUP) and probably add to some of my short positions in the stock market. A rising dollar is bearish for commodities so I will definitely be sure to add to my oil drillers (OIH) which has a head and shoulders pattern. Les see how things open on Monday... have a great weekend!

5 comments:

Anonymous said...

Great article, you couldn't have said it better !

Best regards
Mj

Winkinatcha said...

Agree Kevin,

I have been tracking the $USD for the last three weeks, mainly throught the dollar index but also through my local currency the AUDUSD pair.

Particularly in relation to the USDollar index chart, this baby has been giving off signals very similar to the equity indicies at the march lows this year.

Good luck with your trade.

;)

Anonymous said...

i always watch the USD:MXN and the dollar has been dropping hard and fast for awhile now against the peso. yesterday...there was a significant bounce off 12.50 and is at 12.66 this weekend (according to Yahoo Finance Currency)...it appears that for about a year or more this 12.50 level has been support. might be part of the grand timing of things for the USD to be bouncing here across the board. whatever the rhyme and reason...I'm glad to see it finally give a potential reversal down here in Mexico.

alan

UNG & GAZ didn't look so good immediately after your last post covering natural gas...how does it look to you now?

Kevin said...

I'm out of GAZ...read my post from the other day

mingworld said...

UUP Weekly MACD golden cross is certainly a good sign, but be cautious. Because it could be the start of the bottoming process. e.g. UNG weekly MACD got golden cross in late Feb, and today it still has not established an up trend on the weekly time frame.

I think UUP could make MACD divergence on weekly chart before making a real strong up trend.

Cheers,

Ming

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