Prevailing Bearish Sentiment Says U.S. Dollar Could Plummet in Value
Technical analysis says that the U.S. dollar could be headed much lower. Don’t be shocked if the dollar gets into a collapse-like scenario when compared to other major currencies.
Before going into any details, know that the U.S. dollar is really underperforming. If you look at the U.S. dollar index (which tracks the performance of the U.S. dollar relative to other major currencies), it’s falling.
In 2017, the index went as high as 103.21. Now, it stands at 89.78. If you do the simple math, this represents a decline of more than 13% from its highs. In other words, the U.S. dollar is in correction territory.
If any other asset was trading like this, the mainstream media would be talking about it all day long. But this is going unnoticed for some reason. When was the last time you heard news anchors talk about how poorly the U.S. dollar is performing?
Why Could the U.S. Dollar Decline Further?
Please look at the chart below; it tells us that the greenback could be setting up to disappoint. Pay close attention to the lines drawn on the chart.
Chart courtesy of StockCharts.com
First, look at the blue line. It represents the 50-month moving average of the U.S. dollar index. Technical analysts consider this a long-term trend indicator. Once the price is below the line, it means that the long-term trend is pointing downward.
We see this happening on the U.S. dollar index. This says that bearish sentiment toward the U.S. dollar prevails.
With this, remember the most basic rule of technical analysis: the trend is your friend. If the trend indicator says that the trend is pointing down, technical analysts would say that the U.S. dollar is headed much lower.
How Low Could the U.S. Dollar Go?
Currently, the dollar index is sitting at a very interesting level. On the chart above, look at the black horizon line. It’s finding a lot of support at levels that are similar to when it peaked in 2009 and 2010.
If this level breaks, it’s possible that, given the direction of the overall trend, the greenback could go much lower.
The next major support level isn’t until the lows made in 2011, around 72.5. That’s 19.24% from where it currently sits, and it would be a decline of close to 30% from the 2017 highs.
Why Worry About Lower U.S. Dollar?
Understand this: the U.S. dollar is called the “greenback” for a reason. It is still one the most used currencies in global trade and major financial transactions. The dollar is held by central banks because it is deemed a “safe-haven” currency.
Now, let me ask this: if something that’s trusted around the world collapses 30% in value, what do you think will happen? Won’t those who hold the dollar lose trust in it? It’s very likely. Keep in mind, the only thing holding the dollar up is trust. Its fundamentals are just tormented.
I will be bold here and say this: the U.S. dollar declining could cause a lot of damage across the world. And, for Americans, it could be one of the worst things to happen since the financial crisis.