The chart above is the price of the US Dollar Index on a weekly scale. The chart analyzes the time period between 1993 and 2008. In the last 15 years the US Dollar Index had wide swings and formed clear trends. 1995-2001 was a clear up trend. The moving average crossover signal in 1996 was followed by an uptrend. 2001-2008 was a clear down trend. The moving average crossover signal in 2002 was followed by a down trend. Both trending periods were confirmed by breakdowns and breakouts. The sharp rally in U.S. Dollar Index in the last 5 months generated important technical signals. ADIC's TECH TALK analyzed the dollar index in the last 3 months. The reports tracked the bullish crossover, the pullback and the following strength of the dollar above 80 levels. TECH TALK drew attention to the positive technical outlook on the dollar index. In the last report on the 19th of February ADIC's TECH TALK said: "In the last 2 months, we have seen the dollar index stabilizing above 80 levels and testing the important resistance at 88.50. A break above this resistance will be bullish for the dollar in the intermediate term." Currently the dollar index is trading at 88.00 levels. We penetrated above the 88.50 levels. We need to see more strength above 88.50 to call for a breakout on the dollar index. The technical outlook is bullish.

EUR/HUF

The forint is the currency of Hungary. The forints name comes from the city of Florence. It was reintroduced on 18 August 1946, after the 1945-1946 hyperinflation of the pengo (the currency of Hungary between 1 January 1927 and 31 July 1946). (www.wikipedia.com)

The Economist - February 28th 2009: The whiff of contagion, "...Countries with floating exchange rates have a bit more room for manoeuvre. Their problem (a big one in Hungary, a lesser one in Romania and Poland) is that falling exchange rates may bankrupt the firms and households which have, in past years, taken out unwise loans in foreign currencies, chiefly euros and Swiss francs. That was, in effect, a convergence play. If you believed your country was heading for the euro zone some time in the next few years, then why not take advantage of the low interest rates there, rather than suffer the higher ones in your domestic currency? What seemed a minor risk back then now looks painfully mistaken. For those earning in forints or Polish zloty, the big swings in exchange rates in recent weeks have sent the size of both loans and repayments spiraling upwards."

The chart above shows the Hungarian Forint against the Euro in the last decade. The currency pair moved in a wide range between 275 and 230. The width of the range allowed 20% swings in the last decade. In the beginning of 2003 EUR/HUF reached the lowest level at 230. In 2006 the currency pair penetrated above 275 but fell back into the range and reached 230 levels in 2008. In the second half of 2008, the currency pair broke above 275 and tested the 285 levels. Even though EUR/HUF fell back into the range again, the strong breakout in January 2009 pushed the currency pair above 285 levels. EUR/HUF broke out of a ten year long consolidation range! It is trading at 315 levels.

SILVER

The chart above analyzes the Silver prices between 2007 and 2009. On the chart we can see the strong rally that pushed prices towards 21 levels in the first quarter of 2008 and the sharp correction that reached 8.5 levels in only 7 months after the peak. Even though the two price actions were sharp and swift, there were clear set ups before these moves occurred. Before the rally took place in the first quarter of 2008, the prices consolidated in a downward sloping range in the first half of 2007. The prices broke out of the range in September 2007 at 12.5 with a dual moving average cross over signal. The re-test of the moving averages was in November 2007. Before the sharp drop in Silver prices in the second half of 2008, prices consolidated in a flat range between March 2008 and July 2008. The prices broke down the lower boundary of the range in July 2008 at 16.5 levels with a dual moving average cross over signal. The re-test of the moving averages was in September 2008.

After finding support at 8.5 levels in December 2008, silver prices rebounded and formed a consolidation range between 10.20 and 11.70. The prices broke out of this range in January 2009 and rallied towards 14.50 levels. The dual moving average crossover confirmed the bullish technical outlook. In the last three months Silver formed a clear parallel trend channel. The sharp and fast correction from 14.50 levels to 12.50 levels is the re-test of the moving averages and the lower boundary of the parallel trend channel. 12.50 is an important intermediate term support level for silver prices.

Aksel Kibar
Assistant Vice President/Portfolio Management
Abu Dhabi Investment Company
www.adic.ae

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