The dollar is setting up for a rally…
That’s not the popular opinion, of course. Most folks are looking for the buck to break down.
You can’t blame them. After all, the Treasury Department’s printing press has been working overtime to create enough dollars to fund Washington’s non-stop spending programs.
And the talk of a Fed “pivot” to reverse some of the recent interest rate increases grew louder this week following a cooler-than-expected consumer price index (CPI) report.
These factors are destined to devalue the dollar in the long term.
The greenback has already lost 5% of its value over the past two months. And it’s almost certainly headed lower over the next year.
But for the next few weeks, the setup favors a rally.
Take a look at this daily chart of the U.S. Dollar Index (USD)…
As the dollar index has been making lower lows over the past month, the various technical momentum indicators at the bottom of the chart (MACD, RSI, CCI) have been making higher lows.
This sort of positive divergence is often an early warning sign of an impending rally.
Also, the index is trading today about 5% below its 50-day moving average (MA – blue line). The buck rarely strays more than 3% from its MA before reversing course and heading back toward the line.
So, it sure looks like the dollar is setting up for an oversold rally.
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Even just a modest bounce from here could push the U.S. Dollar Index back up toward the 108 level. That’s where it was trading just over one month ago.
And that’s likely where the 50-day moving average will drop to over the next two weeks.
Of course, as the dollar rallies, assets that typically trade opposite to the buck will likely fall. For example, gold and gold stocks will probably be a bit lower in the days ahead.
But keep in mind that any bounce in the buck will be temporary. The longer-term outlook for the dollar is bearish.
So any short-term weakness in gold and gold stocks will be temporary too.
Best regards and good trading,
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Jeff Clark
Reader Mailbag
In today’s mailbag, a Jeff Clark Trader member shares his success with Jeff’s trade recommendations…
I’m very pleased with Jeff Clark Trader. GDX has been very profitable for me and the updates throughout the day are most helpful. Your updates today helped me make a good trade on BOIL. I went in a few days ago at just under $3,000 and got out this morning at a little over $4,200.
I went in the GDX trade on December 16 at a $27.00 strike (a few days after the recommendation) and made a $7,000 profit. Thanks Jeff. With The Delta Report, I’ve made a little on SSO and SOFI. I didn’t get HBI on my bid. With APP, I got in at .90. It’s currently trading at .20.
I would’ve averaged down, but I’m waiting on the market reaction to the Fed before taking further action. Jeff, I hope you and your family have a Merry Christmas.
– Robert H.
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].