Has a new dollar bull market begun?
Cliff Droke
The rally underway in the U.S. dollar index has begun to bear on commodity prices. Gold and silver in particular have been hard hit by the dollar rally. The dollar confirmed its bear market rally by breaking out above its 30-week moving average. Many are now asking, "Is this the end of the dollar bear market -- and the end of the commodities bull market?" Let's try to answer this question by turning to the charts.
The above weekly chart of the dollar index shows the recent breakout and rally to higher levels over the past few weeks. But is this a sustainable rally? The chart suggests not. Note that while the dollar found support along the outer rim of a parabolic bowl pattern in the weekly chart, the bottom made earlier this year was actually past the mid-point, or "vertex," of the bowl. Whenever price fails to bottom at or before the mid-point, the parabolic bowl usually breaks down and price continues to decline. This failure of the dollar to bottom last summer (when the mid-point of the bowl was reached) strongly suggests the bowl will fail and that the dollar rally will soon falter.
Here is another chart worth examining. It's the long-term monthly chart of the dollar index. Note the presence of a much larger parabolic bowl pattern. The mid-point of this parabola hasn't even been reached yet, which is another reason I believe the dollar hasn't yet seen its final low. Note also the multiple downtrend lines that haven't been broken yet.
This chart suggests there will likely be a re-test of the 2004 lows in the not-too-distant future and possibly even a lower low in the dollar. This should in turn lift pressure from off commodities (including gold) and allow them to resume the uptrend.
April 24, 2004
Clif Droke is the editor of the Durban Deep/XAU Report, a daily forecast and analysis of DROOY, GLG, KGC, XAU, HUI, and GOX written especially for day traders. He is also the author of numerous books on finance and investing, including the top-selling "Moving Averages Simplified." Visit his web site for free samples of his analysis at www.clifdroke.com
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