Look at the U.S. Dollar Index for Direction on the U.S. Dollar
The U.S. dollar could be setting up to collapse. We could see the greenback dropping as much as 22% from where it currently sits relative to other major currencies.
Before going into any details, know that a plummeting greenback could really have dire consequences on the overall U.S. economy, American consumers, and the global economy. Be very careful.
It’s important for investors to pay attention to how the U.S. dollar index is behaving. The dollar index essentially tracks the performance of the greenback relative to other currencies.
Also Read: Will the U.S. Dollar Collapse in 2017?
Just by looking at the price action, the dollar index suggests major downside could be ahead. Look at the chart below.
Chart courtesy of StockCharts.com
On the chart, there are three developments that shouldn’t be ignored.
- The dollar index was finding a lot of support at around the 93.00 level. It was taken out a few weeks ago and the index fails to go above it. In the technical analysis world, broken support is simply considered as a “floor crashing” phenomenon. After a support breaks, usually sellers jump in and take the price lower.
- The 200-day week moving average recently crossed above the price. It’s a trend indicator that should not be taken lightly. At its core, this is saying that the long-term trend of the U.S. dollar is now broken. With this, remember the most basic rule of technical analysis; the trend is your friend until it’s broken.
- Pay attention to the momentum indicators, the moving average convergence/divergence (MACD) at the bottom of the chart, and the relative strength index (RSI). These two indicators are currently saying that sellers are embedded and they could take the U.S. dollar much lower than it currently sits.
Where Could U.S. Dollar Go Next?
Given the amount of bearish sentiment present on the chart, the U.S. dollar could really be setting up to drop.
It would be shocking if the U.S. dollar index drops to 2008 lows, to around 72.00. That’s roughly a decline of 22% from where it currently sits.
Note, there are a few levels where the index could find support. They are around 89.00 and 79.00.
What Would Dollar Collapse Mean?
Dear reader, as said earlier, if the U.S. dollar declines severely, it’s going to impact lot of things at the same time.
Consider this; because of lower dollars, as the U.S. imports a lot of goods from elsewhere in the global economy, Americans will find themselves paying more for things they need. In other words, inflation could jump. This would also impact the overall consumption.
All of a sudden, corporate earnings could become very volatile. Think of it this way; what happens to corporate earnings of companies that bring in raw material from Europe and build products in the U.S. Companies like those could be in deep trouble.
As far as the global economy is concerned, know that the majority of world trade is still done in the U.S. dollar. Also, central banks around the world hold large sums of the greenback. What do you think they are going to do if the dollar continues to deteriorate? A lower dollar could create panic in the global economy.
Looking at all this, I see just one winner. It’s gold. The yellow precious metal could store wealth and provide safety in case the U.S. dollar plummets. It does well in times of currency devaluation.