Summary

  • We expect the US Dollar Index to rally backup to 92.00 levels.
  • Gold is overbought and due for a correction.
  • A time for a consolidation is at hand.

Dollar Rally?

One the highlights in the news last week was the world economic forum in Davos. On Wednesday, the US dollar struck a weaker note on the basis of comments by the US Treasury Secretary Steven Mnuchin. He said, ahead of the central bank’s policy decision, that he welcomed the weaker currency when the Euro was firm. The following day, President Trump negated these comments by confirming that he wanted a strong dollar. So there seems to be some confusion in defining the future path of the US dollar as the world’s reserve currency.

Last week the dollar was under pressure on expectations that the European Bank and Bank of Japan would normalize their monetary policies. The market then broke into the next phase of the bear market with Mnuchin’s comments.

If we put aside this political rhetoric, which seems to only confuse the market even further, the fact of the matter is that the US Dollar Index made a new low on Thursday of 88.25. On Friday, the market recouped a good part of the loss from the previous day, closing at 88.89.

The condition of the dollar seems to indicate that the price has reached an extreme level below the mean and that there is a strong probability that from this oversold condition we should see a corrective rally back up to the 92.00 levels over the coming weeks.

Upon completion of this swing rally…

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