Where Is The US Dollar Price Heading? Must-See Secular Chart
The US dollar price performance is a hot topic among investors these days. We all saw the price climb up, just as we also saw the pressure it was putting on metals - a pressure that eventually spread to the cryptocurrency market and other asset classes.
It is very easy right now to fall into the trap of media pushing specific narratives at an investor, which is one of the 7 most important investing lessons: Narratives create tremendous bias. Currently, the inflation narrative is pushing everyone to the US dollar and out of risk assets. While this narrative may become very profitable, it nonetheless remains a narrative. Remember, the charts have the answer, not our brain.
Recently, we covered the US dollar price performance and the intermarket dynamics of the last two years. This assessment uncovered that the intermarket dynamic was off, especially during the last 12 months, making it hard to forecast the next move for many asset classes. We also concluded that the move upwards in the US dollar seems exhausted.
After the last move upwards in the US dollar, do we still believe it has peaked for 2022? What price levels should investors keep an eye on? This is exactly what we will be covering today.
US Dollar: The Road Map is Crystal Clear on this Secular Chart
Before looking into the chart, let’s talk about patterns first. What is a pattern exactly?
"Formally defined, a pattern is a set of relationships that are satisfied by observations of a system or a collection of systems."
So just like we look for patterns in the price action, we also look for the patterns when we assess how different asset classes interact with each other. Those key “relationships” can trigger the big moves in markets and in portfolios.
Success in investing comes from understanding those patterns, building a system to “catch” those moves, and remaining objective and flexible while managing the trade. This is something that comes with time, but it is very achievable with practice. Our bullish US dollar call in February 2021 is a good example of how success is achievable in investing with the right approach.
Just like we spotted the bottoming price action in the US dollar early and shared this with our Momentum Investing members, we are now early to spotting a toppy price action at these levels.
Findings From The US Dollar Long-Term Chart
This long-term US dollar price chart shows rather clearly how $105 is a very strong resistance level. But let’s say the price breaks out from there -- we would see strong resistance at the $110 level, and even stronger resistance in the $120 area.
The path for the US dollar is pretty clear, based on this chart:
- The first and most likely path is towards a back-test of that $90 support.
- With a breakout above that important $105 resistance, a pullback at $110, and the $105 level acting as support, we could see the price test that $120 area. This would mark the beginning of a new horizontal channel between $105 and $120.
- An in-between scenario: the US dollar price could pull back at $105, where 98-100 would act as support for an undetermined period of time before the price could clear that $105 level.
Those are some scenarios for the US dollar price that investors should continue to monitor as we enter the second half of 2022.
This text was written by hdcharting, and reviewed by Taki Tsaklanos.
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