What should happen to the US dollar next

Technical analyst Clive Maund charts the U.S. dollar and expects it to trade sideways for a while before continuing its downward trend.

Because the dollar has such an important bearing on everything, especially the precious metals, it is timely for us to take a close look at it here after its recent steep drop, for as some of you may have seen.

The latest U.S. Dollar Hedgers chart, which is a form of COT chart, is certainly starting to look bullish, and until these positions ease somewhat, further significant downside for the dollar in the short-term looks unlikely. (chart in left)

Meanwhile, the latest Dollar Optix, or optimism chart, also shows that pessimism is getting overdone. This doesn't necessarily mean that the dollar's downtrend is done, however, as minor rallies can cause this to ease before it then plumbs new lows. These two indicators taken together suggest that a relief rally is likely in the dollar soon, perhaps after it drops a bit lower first, although they don't mean that the rally will get very far.

The dollar rally normally means that gold and silver will drop back. The latest COTs for gold and silver were super bullish, especially silver.

This being so it means one of two things, either the dollar and gold and silver are going to rally in unison, unlikely but possible, or after some kind of relief rally or consolidation pattern, the dollar's decline will resume, perhaps with a vengeance, and as we will see it could possibly accelerate into a crash.

Turning now to the charts for the dollar itself, we start by looking at its latest 9-month chart. As we had already figured out a month or two ago, it is being forced lower at an accelerating pace by a parabolic downtrend. However, should the parabola force a breakdown below the support, a really severe decline or crash will be in prospect.

On the 4-year chart we can see how the parabolic downtrend has forced the dollar down towards the key support approaching the lower boundary of a large bearish Broadening Formation. While several indicators are suggesting that it will take at least a breather here, if it does break down the consequences for the dollar are likely to be dire and this could be the message of the super bullish gold and silver COTs.

Actually, it's not hard to understand why the dollar could crash soon. Those in control of the U.S. have been struggling to maintain the U.S. dollar's supremacy as the global reserve currency for years, which has involved the maintenance of a massive military machine spanning the world, with hundreds of overseas military bases designed to project power and impose dominance.

Now the rising Eastern powers like China are threatening the hegemony of the dollar, but they can't be attacked because they have nukes and can strike back. Russia has nukes too and so can't be attacked physically. The democratically elected government of the Ukraine was overthrown by heavily bankrolled neo-Nazis to install a pro-U.S., anti-Russian puppet government.

The East is playing a carefully calculated game to rid itself of dollar dominance, and those of you who have read "The Art of War" will know that they are not to be underestimated, thus the continued US threat of using brute force. What is likely to happen is that the East will gradually circumvent the dollar until the U.S. economy collapses, no longer able to afford the huge burdens of its massive debts, welfare state and the military drain. This makes the situation very dangerous, because the U.S. will be tempted to use force to maintain its dominance while it can still afford to.

Finally, we will take a quick look at the very long-term 20-year chart for the dollar index. This chart makes plain that if the dollar has peaked, and is soon to enter a severe decline, it won’t be the 1st time in the past two decades, as between 2002 and 2008 it suffered a massive drop and that was long before it was threatened with being delisted as the global reserve currency. This chart also shows that it could drop a long, long way from the bearish looking Broadening Top that may now be approaching completion.

In conclusion: the latest extremely bullish COT charts are not negated by the dollar being oversold here and some of its indicators looking positive. The bigger picture is that the dollar may be headed for a breakdown and severe decline or even a crash.

Source: Bloomberg Pro Terminal

Jr Trader Ivan Ivanov

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