Home > Commodities and Rates > Dollar Index At Major Resistance, Sentiment At An Extreme

Dollar Index At Major Resistance, Sentiment At An Extreme

Currently the Dollar Index (DXY) is beginning to back off a major trend-line extending back to late 2005, which consquently is the neckline to a long-term Inverse-head-and-shoulders pattern developing on the weekly/monthly charts.

There also exist an extreme amount of bullishness surrounding the Dollar's rise as evidenced by the 'Public Opinion' indicator's score of 79.2% shown below. The current level is the 2nd highest reading since the data began in 1999. You can see from the chart, the last time sentiment rose to this level was back in November of 2008, which coincided with a top and drop of over 10%.

Dollar index         
Image004

According to Jason Goepfert at sentimentrader.com when the Public Opinion crossed over 70% the Dollar struggled mightily. This is what he has to say: "During the next three months, the Dollar's average maximum gain was 1.5%, while the average maximum loss was -5.6%, so a huge difference between risk and reward there – it just wasn't often able to maintain additional short-term upside."

Table From Sentimentrader:


Date

1
Week

Later

2
Weeks

Later

1
Month

Later

3
Months

Later

05/05/00 -0.7% -0.2% -3.9% 0.0%
05/19/00 -2.1% -4.4% -3.6% 0.0%
03/30/01 -2.2% -1.0% -1.8% 1.8%
06/01/01 0.3% -0.5% 0.7% -5.1%
07/06/01 -0.5% -2.2% -2.9% -5.5%
01/25/02 -0.1% -0.7% 0.0% -4.0%
03/01/02 -1.2% -1.8% -1.2% -6.4%
06/03/05 0.7% -0.4% 2.7% -1.7%
11/11/05 -0.1% -1.1% -1.7% -1.6%
10/22/08 -0.4% -0.9% 3.0% -0.3%
02/25/09 0.7% -0.2% -4.3% -8.9%
Average -0.5% -1.2% -1.2% -2.9%
% Positive 27% 0% 27% 18%

In conclusion, evidence looks stacked heavily against the Dollar going forward. The long-term price resistance coinciding with the extreme bullishness suggest a favorable risk/reward opportunity for bearish bets against the dollar. A Dollar correction could also help bolster beaten down risk assets as money managers shuffle their portfolios.

     

Advertisements
Categories: Commodities and Rates
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: