Given the amount of money the government is spending to try and fix the economy, the devaluation of the dollar seems almost certain. However, in order for the US dollar to become devalued other currencies have to become more valuable relative to the US dollar, thus pushing the value of the dollar down.
But when we look at the technicals of the US dollar index, we become rather bullish. The Index has a major multi-year support at 80 that was broken in the middle of 2007, (as shown in the first chart). This support became resistance that was tested in September of 2008 and that resistance was broken in October of 2008 thus returning the 80 level into support. It has now retested this support twice in December of 2008 and has held both times as we can see in the second chart. Looking at the third chart, the index has clearly broken out of its weekly downtrend, thus a separate second bullish signal. The index is now retesting its recent highs of around 88.40 and if we see a break in these highs this should trigger a move to its next important resistance level of 92.60.
updated Feb 19, 2009
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