Is The Dollar Setting Up For A "Rip Your Face Off" Rally Or Total Freefall?

Tyler Durden's picture

Authored by Charles Hugh Smith via OfTwoMinds blog,

There's not much to encourage Bulls in the daily chart of the USD.

The U.S. dollar's relentless decline this year poses a question: is the USD setting up for a monster rally, or is it in a slow-motion crash? Opinions vary, of course, as to the possible reasons for the massive decline: European growth is better than expected, Trump's presidency is going nowhere, the Federal Reserve won't be raising rates, and so on.

The nice thing about charts is they summarize all these inputs into a snapshot. So let's take a look at the daily and weekly charts of the USD.

Daily:

Weekly:

There's nothing fancy here, just the basics of moving averages, RSI, stochastics and MACD. There's not much to encourage Bulls in the daily chart: every attempt to regain the support of the 20-day moving average has failed, and triggered another leg down.

RSI and stochastics are oversold, but as this chart illustrates, oversold conditions can continue for quite some time. MACD may be setting up the beginnings of a divergence/reversal, but maybe not. At this point, betting on a reversal might be a case of catching the falling knife.

The weekly chart is even more dramatic. Judging by the steep decline this year, the world is ending--at least for the USD. RSI is oversold for the first time in 2+ years, stochastics have been deeply oversold for months, and MACD is in a cliff-dive that could end in a belly-flop.

The only shred of bullish hope is the decline has finally reached key support/resistance at the 200-week moving average (MA) around 92, a level that also happens to be support going back 2+ years.

A definitive plunge below this support would suggest the freefall has more to go, while a defense of this level would offer some initial stirrings of support for an eventual reversal.

A quick glance at the open options a couple months out on the USD ETF, UUP, finds significant volumes clustered around strike 24 puts--bets UUP will drop below its current level around 24-- and strike 25 calls--bets that the USD will recover in a sharp rally.

Punters seem well-positioned to hedge a big move up or down--just what we'd expect after months of steep decline to a key support zone.

Is the Eurozone economy and banking sector fixed, and all the EU political tensions resolved? Is the Eurozone doing much better than the U.S. on all fronts? The sharp gains in the euro seem to suggest so. Skeptics might want to keep an eye on the USD charts for a market-sentiment read of these political-social-financial trends.

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kliguy38's picture

I'll go with door number one bob..........and protect my face

phatfawzi's picture

Rip your face rally and crush gold. 

wee-weed up's picture

 

 

Should be total freefall...

But TPTP will probably work their...

"under the table" shinanigans (as usual)

to see that it does not.

French Bloke's picture

Can  a currency (note - not true money) that is backed by worthlesss US Treasury bonds and a nation in debt to over $20 trillion plus unfunded liabilities into the 100's of trillions ever be truly oversold? When it gets to it's intrinsic value of "ZERO", would it still legitimately be classed as oversold? The western fiat currencies are all ponzies and their end can't come soon enough...

SRV's picture

Yes, when most of the world is forced to buy it, as it's required to buy oil... 

Mustafa Kemal's picture

Stevie

" as it's required to buy oil.."

not anymore, and that trend is continuing fast.

I like your guitar playing BTW

armada's picture

The coming Financial CATACLYSM will be Ugly, Bloody, and Messy. http://bit.ly/1KogtGi

Mustafa Kemal's picture

Stevie

" as it's required to buy oil.."

not anymore, and that trend is continuing fast.

I like your guitar playing BTW

phatfawzi's picture

sorry gold bugs you can down vote me all you want but you can't avoid the fate of gold, its nothing but jewelry.  The internet will do to the price of gold what it has done to the price of  traditional phone service and price of online trading just to name a few. Currency is being digitized and gold is no longer necessary. If you've owned gold for the past 5+ years your are down on your investment and sorry it has brought you minimal protection against inflation. The future is the cryptocurrency. 

Mustafa Kemal's picture

"and gold is no longer necessary. "

This crypto stacker disagrees. I also stack Au

Games Without Frontiers's picture

We'll have them trade their paper currency backed by nothing for digital currency backed by nothing! Brilliant!

phatfawzi's picture

and whats your gold backed by? Gold's value is determined by supply and demand, how is that different than the cryptos valuations. 

Yellow_Snow's picture

Keep on stack'n... the coins !  :)

phatfawzi's picture

its not about stacking the coins, its just that cryptos are much better alternative to worthless fiate currencies and much easier to use and carry across borders. 

Games Without Frontiers's picture

Gold is backed by it's scarcity, the labor/energy requirements to extract an ounce, usefulness as the ultimate currency, and 6000 years of monetary history. Just off the top of my head. If you think governments aren't going to cross into the low entry barrier of crypto, I have a digital bridge I'd like to sell you. It's like a real bridge, only it's comprised of 1's and 0's on a server, so it's almost as useful as a real one.

Lore's picture

re: "If you've owned gold for the past 5+ years your are down on your investment."

What's bringing out the boneheads lately?  Is it the summer heat?

phatfawzi's picture

i can show you the chart if youd like. 

Lore's picture

To be fair, it probably depends entirely on your time frame and how you participate (source / choice of product).  ZH has posted several articles recently illustrating how PMs have outpaced every other asset class. Things were pretty dead for a couple years.  I'm having my best year ever in the PM sector.

Ajax-1's picture

Because we all know that digital currencies are derived from exploding supernova's that travel billions of miles through outer space in which a very minute portion make their way to planet Earth. That's what makes them so valuable and rare. in addition, there are many industrial applications for digital currencies due to their unique electrical conduction properties. Sarc.

Maximeme Q's picture

No, I can't downvote you all I want. I'm only allowed 1.

August's picture

>>>The future is the cryptocurrency. 

Perhaps.

mofinance's picture

I hate to admit it and nobody wants to believe it but you are correct. Gold has worked like a hundred years ago but now its just a shiny rock, Maybe one day in a few decades or centuries when it becomes scarce it may become relevant again. Fiat currencies are shit too, I assure you we will never run out of ink or paper. As far as cryptocurrencies that is the way of the future . Which cryptocurrency i can't say for sure. There will be many more innovative ones to come.

Simplifiedfrisbee's picture

Expect stagflation then an economic collapse. Trumptards are to blame for the anger that has ushered in the downfall of a once wonderful nation. Long live the dollar!

malek's picture

And as usual the answer is: YES!

SubjectivObject's picture

I'll selfishly assert a rally

because I'm usually wrong

Yen Cross's picture

   The $usdx is due for a substancial retrace. The drop is almost 50.00% of the ECB T-LTRO drop in the euro, and Draghi hasn't really commited to winding back QE.

 The euro is way out over its skies, and European exports are going to start feeling the pain.

French Bloke's picture

Today it's the euro,tomorrow the yen, after that maybe GBP and then back to the USD... They are all pissing in the same pot. This central bank organised game of musical chairs is not relevant to China, or even Russia. The sooner someone goes on the gold standard, the sooner this whole sham will be over. That will be the day the music stops for an awfully long time and there will be no chairs to be had.

Gold = chairs

Bryan's picture

I'm thinking the same, but still cautious in trading.  The fate of the USD is in the hands of the Fed and other CBs.  We are still in a 'race to the bottom' to devalue currencies, especially if they can't get away with inflating the debt away.

MozartIII's picture

Euro is hype. Trump is doing what he accused other countries of, droping the dollar. Joke! whate will the Euro be in 5 years?

eduard khil's picture

Just as I was finally getting my old face back this comes along

Sam Clemons's picture

So pretty much all stock gains of the past two years have been falling dollar. But don't worry, once dollar starts to go up, stocks will also go up.

Yen Cross's picture

 When stocks start going down globally, investors will run to $usd and Treasuries. [same as it ever was]

 Then Moe Howard will print another $trillion or 2, and tank the shit out of the $usd again. Assuming a loaf of bread isn't worth more than a Human kidney by then.

TahoeBilly2012's picture

I dunno Yen, let's see if 91.88 falls.

Yen Cross's picture

  The jobs numbers in the morning will probably provide some insights.

   I have the 200 week sma around 92.33.  Then the 50.00% Fibi of the 78.712- 103.934 move @ 91.323 area. I also see that support you mentioned.

 If there's going to be a concerted effort, all three of those levels need to get taken out for a big move lower.

tion's picture

Yes some strength will flee to USD but increasingly more will be fleeing to bitcoin. Also, if there is a meltdown there may well be phyz pm shortages, those would be buyers will not turn to USD or paper pm.

order66's picture

3 canned oscillators. Fucking morons. They don't tell you shit.

Doom and Dust's picture

The eurozone has become the lead indicator. Whowouldathunk.

Current dollar weakness is all managed decline, like the Plaza accords without the fuzz.

 

Silver Savior's picture

Fuck the dollar. It's crap.

Cabreado's picture

Only a disruption has a chance of registering some truthiness.

Bring on the Swan.

wet_nurse's picture

It's what Trump wants. Im not saying it's happening because he wants it.

Mr T's picture

Charts, graphs oh yeah. I see that the trend is your friend. Except when trending down.or up? How about a chart of all the squids picks

http://investorwand.com/investment-research-firm/742/goldman-sachs

Chances are pretty good if Goldman Sachs recommends buy they are selling into and vice a versa

Gods work and all that. Only which god

Curious Crandall's picture

This rally is most definetly going to ripyour face off. We may even see new all time index highs.

 

NoWayJose's picture

Nothing special about the buck - but the alternatives are probably in even worse shape. Rally is very likely.

SeuMadruga's picture

Rally ? You mean getting mired in the mud ?

rejected's picture

Pretty Charts.....

BTFD

Games Without Frontiers's picture

What is the intrinsic value for a paper debt note for a country $20 trillion in debt worth?

Consuelo's picture

 

 

'The fate of the $USD lies in the hands of...'

Those who we wish to have trade wars with and militarily ring-fence.

It most definitely does NOT lie in the hands of the Fed.