The Dollar Index, How Bad Could It Get?

This week we have had the Treasury Secretary confirm our strong dollar policy and the Fed Chairman reiterate it. Yet with every speech the US Dollar Index goes lower. But we should not worry right, after all we have always had a strong dollar policy and the Treasury and the Fed will step it up if that is threatened right? Sounds good, but look at what the charts are saying.

US Dollar Index, 21 Year Monthly Chart

There are several chilling aspects in this 21 year monthly chart of the US Dollar Index. The first is that it has traded below 80 three times in the past 3 years. This is an area that it does not have a print anywhere else on this chart. 21 years above 80. In fact the Federal Reserve Bank of Atlanta has the data back to January 1973, and the Index has never been this low. Second After coming off of a double top in 2001 and 2002 at about 120 it bounced at 80 and then has been in a symmetrical triangle until the break out continuation lower last month. There are two targets that come out of this pattern. The first is the triangle target at 56, the second is the continuation of the downtrend to 40. There is no guarantee it will reach those targets but those are staggering levels. Finally notice that all of the Simple Moving Averages (SMA), the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicator are pointing to lower prices. There is not a hint of divergence from price. And the Bollinger Bands (BB) are expanding as it moves lower.

US Dollar Index, 3 Year Weekly Chart

Focusing in on the weekly timeframe allows an examination of the price action and symmetrical triangle of the last three years to get some shorter term targets. First notice that there are 2 sets of Head and Shoulders tops operating. The one labeled in blue has a target of at least 71.75. That is the first target. The second Head and Shoulders, with two heads and labeled in red, has a target of 59.80. There is a bright spot on this chart in that the moves from June 2010 to August and then August to November both lasted about 8 points so on a Measured Move (MM) the current 73.31 level would satisfy the MM from January 2011 lower. Maybe a stall to come now. But the technicals are set up for a continuation lower. The SMA, RSI and MACD are all sloping down, and the BB are moving lower to facilitate more downside.

Bottom line, if Timmy and Ben and Barack from Hawaii want to convince me and the World that they are for a strong dollar they have some work to do. Major work. There is not one iota of evidence in the price history to back up their claim. Maybe this is why the financial world gives the policy zero credit.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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