Dollar Musings 2012

In the end it’s all about the Dollar – so let’s cover our 2012 outlook in two simple charts:

I really think the Euro is going to take it on the chin this year and just in time as I’m planning to spend two months in Madrid this spring. A drop toward 1.2ish would do wonders for my exchange rate 😉

As usual I throw the short term charts to the wolves – the long term goodness is reserved for the subs. You know that I like simple charts – two Bollingers is the extent I indulge in indicators and even that is already too much. I wish I could do without them – give it a few more years. Scott is a lot more purist and is mainly focused on price – hat tip to the old convict – I do like ’em hardcore.

Now just look at the daily DXY panel posted above – rather easy to see what’s going on here. Since its final 74.86 low last year it’s done a pretty good job of bouncing off its 25-day SMA. Unfortunately I didn’t look at this chart yesterday – this would have been a good setup – my bad! But if it reverts back then you know what to do: Just take out a long position in your favorite Dollar bullish ETF (e.g. UUP) or short the EUR/USD (or UDN) with a stop a few ticks below that SMA on the DXY (you can actually do just that in ThinkOrSwim, which is very cool).

Alright, now on to the long term, which is looking very interesting:
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Now the medium term chart shows us a rising 25-day BB and that means resistance is bubbling up. Bullish! Weekly support conveniently hovering around 79 – if it drops I expect longs to step in there. Finally, the monthly reveals two resistance levels: 82.5 and 86 – the former being the 100-month SMA and the latter the upper line of the 25-month Bollinger. It’ll take some doing to overcome that – in particular since the upper 25-month BB lines up with the upper 100-month BB. There will be blood!

Naturally 86 is going to be the big inflection point here. If overcome then we most likely will push into 92.5 by the end of this year. In terms of timing I expect this to happen most likely in late summer or fall.
[/amprotect] Cheers,