Currency Move Coming

The US dollar looks like it is poised for a significant multi-month move.

On a daily chart, it has been forming a bottoming wedge for a few months and it broke out to the upside today. That wedge – lower highs and higher lows converging to one point (roughly 75 on the US$ index) at around the end of the month – ie just when the debt limit/default politics stuff is resolved.

On a weekly chart, the dollar index has been cycling between roughly 74 and 88 since 2006. It is near the lows of that range. The two sharp upsurges since then have been the liquidity crunch of late 2008 and early 2009 and the first euro/Greece crisis of 2010. Both of which were panic safe-haven surges – reversed by the Fed implementing a QE program to trash the dollar. I think this rebound will be a bit different from the last two. Don’t know how.

The key currency pair is dollar-euro. Both have serious problems and news events are likely to drive both – and thus the dollar index and equities/commodities. Swiss franc is in turn going to key off the euro zone but it looks very overbought and could be subject to intervention by the Swiss central bank.

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