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Dollar Rally Could Be Over
For a combination of reasons, including Treasury Secretary Paulson's stronger Dollar policy, North Korea and the lowest Federal Deficit in 4 years, the Dollar had an unexpected strong rally, that also may have evolved due to an overly negative sentiment. Right now, one could argue that we have just witnessed nothing more than a sharp counter-trend C wave rally, that if the case, could soon see a resumption of the major downtrend in the US unit that has been in place since early 2002 and was re-established late last year... The one caveat that should be kept in mind is the emerging possibility of a potential reverse head and shoulders formation, that if it were to hold, could foment a significantly larger move to the upside. However, on the other side of the coin, in the event that the Dollar were to break down from here anew, not only could the downside move be potentially devastating, one of the most powerful market forces can evolve from what we call a negated head and shoulders formation: The reason being, many investors tend to bet big when they recognize an unfolding head and shoulders formation at the highs or the reverse at the lows, such as is potentially the case with the US Dollar. But, if and when such a formation is negated, Investors have to bail big from their expected outcomes and that tends to exacerbate the potential negation or destruction of that formation. Such a scenario, should it unfold could create the lack of confidence in the US Dollar as was widely predicted.
Stocks and market indices experienced a sharp pullback post the Fed minutes release yesterday on fears of higher than expected inflation, but bounced back sharply into the close. Ordinarily, this should boost upside action, but a breakdown from here would have to be viewed as a negative development, so that is something we have to monitor very closely in the coming days. The market has remained resilient up 'till now, but things could get more tricky from here on out and the North Korean situation is something that could easily spiral out of control...
That might be helpful to metals in general as would a weakening Dollar potentially help Gold and Silver which are now poised for a rebound.
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