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US Dollar Index & Gold

The Dollar Index broke its weekly trend line to the upside in April, and has since traded higher over the past few weeks to this week's high near 87. Looking at the weekly and monthly charts of both the dollar and gold, it seems clear that the trends from 2001 are over and we are now going to correct the decline in the dollar and the rally in gold. This is reinforced by the heavy support on the monthly dollar chart at 80.

However, the shorter-term charts are not in agreement. The daily dollar chart (along with short-term charts in some of the major currencies versus the dollar) is suggesting that the rally from the December 2004 low at 80.39 has been a correction that may be near completion. The action of the HUI over the past three weeks and Gold over the past week continues to support the correction view, and we'll look at this in depth in Market Notes which will be posted on July 1st.

The dollar is overbought in the short-term, especially after the Euro breakdown last week following France's "No" vote. The Dollar may have resumed its downtrend against the Yen and the Canadian dollar last week, and they remain clear short candidates. But the Euro and the Pound have continued their downtrend vs. the Dollar. This makes for a mixed bag for the Dollar index, but clear trading opportunities within the index.

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