The US Dollar Index keeps drifting downward as if it is on some sort of mission. Clearly this has helped the broad market keep going UP as well as gold. The popular story line on the US Dollar Index right now is that sentiment wise there are too many bears and hardly any bulls. From a contrarian standpoint that is very bullish for the US Dollar.
However, these contrarians have been talking about a huge upside US Dollar Index bounce since about 2 months ago. Meanwhile the dollar has just continued to break support levels and fall in a ‘slow waterfall’ fashion.
At some point we really should see the US Dollar Index get some footing for an upside bounce which should finally correct the stock market and gold as well.
If you look carefully at the chart above of the US Dollar Index you can see that the price is fast approaching the solid blue line which is the small angle up trendline support from the mega bear market lows made in early 2008.
We need to watch the US Dollar carefully as it approaches this blue line because it could be the start of the long awaited bounce in the US Dollar that corrects the markets and gold price. We are not that far from this support line and I must admit I do find it curious that we are approaching this support area going right into this key astro date weekend and new moon weekend.
The blue support line area comes in around the level of about 74.25 or 74.30.
If we break down through the solid blue line support area then it would imply the US Dollar wants to make a trip to the next support area of 72. It is absolutely crucial for the US Dollar to hold the 72 level to keep any hope of an upside bounce going.
It is also important for it to hold the blue trendline support to stop a bit of the excess bearishness on the Dollar Index.
I don’t know which one of these levels will hold or which will be broken, we will just have to wait and see. But I think it is important to be aware of this coming possible transition in this market which could have dramatic implications for stocks and gold.
Touching the solid blue uptrendline would be the third touch of the trendline. If it holds, then it would give the trendline added significance.
I will do an update on the US Dollar Index when we get close to a decision point.