In the last few months, we have taken a contrarian route in this blog.
While most were consumed with Greece and the faults of the euro, we were stating that this just looked like another short-term bounce in the dollar.
Firstly, the dollar is not really rallying. The euro is just falling.
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If you look at most Asian currencies, you will see that almost all of them are up year to date against the U.S. dollar. However, there is only one Asian currency in the U.S. Dollar Index (the yen).
However, even with that, the bearish sentiment on the euro was getting overwhelming; there was a record short position on the euro as of a few years ago.
People were acting like Greece would be the end-all. Greece going under is like Rhode Island going under. And I am sure the United States would not dissolve if Rhode Island went bankrupt.
I am basing most of my argument on a U.S. dollar top on technical analysis.
Right now, it is impossible to value the euro versus the dollar on a fundamental basis because both are such terrible currencies. I can’t tell you what the euro is worth against the dollar, maybe $1.40, maybe $1.50, maybe $1.20.
However, I can tell you on the technical charts, the dollar is looking increasingly toppy.
Back in November, the euro rallied to 1.50, fell back and then rallied to 1.51 before topping and falling.
This was a false breakout that saw a sharp decline that followed.
This time around, we saw the U.S. Dollar Index rally to 81, fall back, then rally to 82.
It has now fallen back to around the 80 area.
The dollar has a lot of support in the 79.50 area. If it breaks down, it looks likely that a topping pattern has been put in.
After that, the next target is the 78 area, which is the 150-day moving average.
The U.S. dollar has had a nice run against the euro. Both are bad currencies.
However, if the dollar completes this topping pattern, it might again begin its trend downward once again.
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About the Author: David Skarica
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