The U.S. Dollar Index ($USD) has been in a strong downtrend for over a year. It’s fallen over 5% in just the past two months.

When we looked at the dollar earlier this month, we noted the index was headed toward its September low at about 91 (the second horizontal red line on the chart below). And we cautioned that, if that level did not hold as support, then there was a lot more room to fall before the dollar reached its next support level.

Well… look out below. Here’s an updated look at the chart I showed you in early January…

After a couple of days of trying to gain some footing, $USD turned lower again yesterday. It’s oversold. And investor sentiment (a contrary indicator) is quite bearish on the buck.

That might be enough to cause a short-term bounce. But I don’t think so.

Look at the MACD and RSI indicators at the bottom of the chart. There’s no sign yet of any positive divergence. This tells us the downtrend is strong and likely to continue.

To me, it looks like the dollar is on the verge of a “flush-out” move.

A flush-out is that final, dramatic decline that occurs at the end of a prolonged downtrend. Investor sentiment is usually quite bearish. Technical conditions are almost always oversold. Yet, in spite of all that, the asset still can’t manage to bounce.

That’s when the last of the holdouts finally throw in the towel. They’re exhausted from holding on to a position that does nothing but fall. So, they finally hit the “sell” button.

I expect that’s what will cause the next big drop in the dollar – which should bring $USD to its next support line, about 3% lower from here.

In turn, that action is likely to spark another nice move higher in gold.

Best regards and good trading,

Jeff Clark

P.S. In my weekly option trading advisory Delta Report, we’ve been playing the dollar’s plunge by taking low-risk, high-upside trades in the gold sector.

And so far, with wins like 155% on Goldcorp just last week, that strategy is paying off…

To learn more about a subscription to the Delta Report, click here.

Reader Mailbag

Today, some words on waiting for the right trade setup…

I know that good trades have been hard to find but I’m okay with that. The waiting is the hardest part.

My biggest regrets have come after entering trades out of boredom. As a retired paramedic, I definitely had a tendency to maintain a high level of anxiety by creating chaos if necessary to break the unbearable silence, but eventually recognized that traits that are useful in one trade can be detrimental in another.

I am much less inclined to pursue low-probability trades now and my returns are substantially higher as a result, so I find your trading service to be a good fit for how I trade. Looking forward to the return of volatility!

– Paul W.

And a question about market makers…

Could you possibly find any more naysayers who do not have a clue about your work? I admire that you take the time to respond to some of them, but enough. Time better spent with educating us on how to trade. No one does it better!

Please explain exactly how “market makers” work and who they work for and who are they accountable to? Seems they are an awfully powerful lot. Or, am I totally out to lunch?

– Charlie H.

Thanks for writing in, Charlie. Jeff breaks down the power that market makers have in this essay, “Two Cops and a Bunch of Stinking Market Makers”…

And as always, feel free to send in your trading stories, questions, and suggestions right here.