Anther False Dawn For The US Dollar

There was plenty of excitement surrounding the US Dollar yesterday afternoon as it looked to be closing with a technically bullish chart pattern. Despite this, gold continued the journey higher.

At times, the Dollar move looked to be at odds with other markets; equities were quietly holding the higher ground and gold never relinquished more than a few Dollars from its high.

In recent days the other side of that equation has been a weaker Dollar, but this time the greenback made gains against most of the high-yielding currencies. Towards the UK close I was seeing a postbox of messages pointing out the bullish engulfing candle on the Dollar Index.

For me, though, there was still a problem. The daily candle did close on a bullish note, but earlier in the day it had tested the falling 21-day moving average and been sent packing. I use the 21-day moving average as my primary trend indicator and at the moment it’s emphatically pointing lower. Even if the index had crossed the line I’d have expected it to fall again sometime soon.

This doesn’t mean I’m against a Dollar rally; I’ve bleated on repeatedly about how we’re due a change from the ’smack the Dollar’ trade. But the chart really isn’t backing that up yet. There are no bullish clues from the RSI, MACD or Parabolic indicators, and the trend indicator is down, as is the longer-term trend line on the chart helpfully provided by Barchart.com. I sort of feel the turn is coming, but I need to see a closing candle above yesterday’s high and the 21-day MAV before I buy into the move.

Gold
I’ve been holding off writing about gold until I had something sensible to say; I still haven’t, but as a sign of respect I ought to feature the meteoric rise in bling:

Like with equities, gold has been a one-way bet just so long as traders were prepared to run the Dollar carry trade. But November’s $100-plus rally has taken it into nosebleed territory, surprising even the most bovine of gold bulls.

This afternoon comments from the Fed’s Bullard lifted gold to the mile-stone $1150 level, making the seemingly outrageous target of $1200 look like an early Christmas present.

So, what of the chart?
The market is blatantly overbought with the RSI showing a reading of 78, but there’re no signs yet of momentum fading either on the RSI or MACD. The only possible negative is that the price has cut loose from the upper Bollinger band, but that hasn’t stopped the price from rising several Dollars a day.

With the market overbought I’ll be looking for a reversal signal to sell down to $1100, and that could happen in the next few days.

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