Don’t let the recent strength of the US Dollar fool you as we are still in a major downtrend that could be about to take a turn for the worse. We are quickly approaching a critical point in this pattern. The $80 range is the neckline and a break through that convincingly should eventually send this down to the $40 range over the next 5-8 years. It’s not going to happen overnight, but a slow bleed down to those levels rendering the worlds safest currency essentially worthless. You can argue the other side of the story till you’re blue in the face, but the fact is that charts don’t lie.
The only thing that can save the dollar is if this chart morphs into some other pattern soon. It has to bounce and begin forming a series of higher highs and lower lows, or else one should start hedging by way of UDN (PowerShares DB US Dollar IndexBearish Fund) and of course gold.
To tie this in to the previous post regarding gold. As long as trends remain bullish for the gold sector in the longer term, a large drop in the US dollar makes perfect sense. That’s not to say that it’s going to play out that way, I’m just saying that it makes sense that the dollar will be under pressure then gold should do very well in the future.
