The dollar rally is just about over.
The U.S. dollar has gained 4% over the past four weeks. That may not seem like a big deal for stock traders who are used to seeing large, chaotic moves in their portfolios.
But, for a currency, a 4% rally in one month is insane.
And, if you bought the buck last month when we pointed out the potentially bullish setup, then it’s time to book the profit.
The Dollar Has Reached Our Upside Target
Here’s the updated chart…
When we looked at this chart one month ago, we noted the dollar was trading near its lowest level of the year. But, there was positive divergence on all of the momentum indicators at the bottom of the chart. And, we suggested that a strong rally could boost the buck all the way back up to the 104 level.
That’s where we are today.
Now though, the dollar is overbought. It’s trading well above all of its various moving average lines. And, those moving averages are extended far away from each other.
So, there’s not a lot of fuel left to power the dollar much higher from here in the short term.
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Another Overbought Indicator
Traders should also note that the Relative Strength Index (RSI) is above 70. That’s another indication of an overbought condition. It’s rare for the RSI for the dollar to reach such an extreme level. The last time it happened, back in mid-April, the dollar peaked and then trended lower for the next two months.
Of course, that doesn’t guarantee the buck is going to sell off immediately from here. But, it does suggest that there’s probably not a lot of upside left in this current rally.
So, rather than risk giving back some of the gains achieved over the past month, traders who bought the buck on our suggestion last month should take their gains off the table today.
Best regards and good trading,
Jeff Clark
Editor, Market Minute