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

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.

Comments

French Bloke wee-weed up Thu, 08/03/2017 - 20:22 Permalink

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...

In reply to by wee-weed up

phatfawzi French Bloke Thu, 08/03/2017 - 20:42 Permalink

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. 

In reply to by French Bloke

Games Without … phatfawzi Thu, 08/03/2017 - 22:45 Permalink

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.

In reply to by phatfawzi

Lore phatfawzi Thu, 08/03/2017 - 22:43 Permalink

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.

In reply to by phatfawzi

Ajax-1 phatfawzi Thu, 08/03/2017 - 22:36 Permalink

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.

In reply to by phatfawzi

mofinance phatfawzi Thu, 08/03/2017 - 23:26 Permalink

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.

In reply to by phatfawzi

Yen Cross Thu, 08/03/2017 - 20:07 Permalink

   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 Yen Cross Thu, 08/03/2017 - 20:26 Permalink

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

In reply to by Yen Cross

Sam Clemons Thu, 08/03/2017 - 20:11 Permalink

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.

Consuelo Thu, 08/03/2017 - 21:44 Permalink

  '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.