The “Power of the Pattern” has been suggesting that a bullish Cup & Handle pattern has been forming in the U.S. Dollar (see post here)
In prior posts I shared that the ideal situation would be for the Dollar to come back and test the top of the cup as support, have support hold and then the Dollar should move higher…below is an update, as the Dollar is following this pattern!
CLICK ON CHART TO ENLARGE
The price action and the pattern remains pretty close to text book in the Dollar and the “Cup & Handle” pattern.
A further push higher by the Dollar will continue to push risk assets lower and could really put a hurt on the metals complex, due to fund flows in Gold being at record highs!
If you push back the chart a little, the dollar has been trading mainly sideways or with a small downtrend bias since 2005. Three highs in 2005, 2009, and 2010 give us the most plausible resistance line
Last 3 dollar rallies lasted ~12 mos, 7 mos. (shortened by QE2?), and ~12 mos. Current rally at the end of 12 months would bring the dollar level to 87.15 if the aforementioned trend line holds. That would mean that a ~10% rally would be in order from current level
There is however the trend line off of the 2002 high through the most recent dollar high in 2010 (now at 45 degree angle by the way)which could provide resistance @ ~82.30 to 82.90 area in Q1 2012. Of course I do not know what significance this line may still have since it was eclipsed to the upside in the middle of 2008 (was near a 60 degree angle). In fact the dollar broke out of a wedge pattern at the same time.
Dollar support line is in an uptrend off the 2008 and 2011 lows
It sure looks to me like the dollar is at a pivot point on a long term chart which would suggest that a multi-year low in the dollar may have been made in 2008.
Chris,I am sure you have posted something to this affect (of course without all of the rambling)so I apologize if I stepped on anyone’s feet.
Chris – spot on, as usual.
Do you have a natural first target for the dollar in mind?