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Technical analysis – Has the dollar recovery started?

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By Michael Hewson

Date: Tuesday 12 Aug 2008

LONDON (ShareCast) - For the last three years the US dollar has been in a steady decline, illustrated by a drop in the US Dollar Index from highs of 93.20 in mid 2005 to fresh lows at 70.70 in March this year.

However in the last seven days the greenback has rallied strongly, gold and oil are both sharply lower and both the euro and sterling have given up ground.

The key question is will this continue? The charts suggest it might. We are currently at a decision point in the USD Index, which measures the dollar's performance against a basket of currencies, with the market hitting three-year down trend line resistance at 76.60.

USD Index

A break above this key level would mark a key turning point for the markets perception of the dollar. Only three months ago experts were talking about its demise as the world’s primary currency.

Such a move could presage significant advances in the dollar, which in turn would filter through to lower values for gold, euro and sterling.

It could be an interesting next few weeks.

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