Investors Need To Watch This Chart VERY Closely!
Times are about to get tough for the US Dollar…
After Ben Bernanke’s quantitative easing (QE) announcement a few weeks ago, investors the world over are becoming overwhelmingly bearish on the greenback. It makes sense of course, as the Federal Reserve is likely embarking on one of the biggest money printing campaigns in global financial history.
In case you’re unaware, Mr. Bernanke and his associates at the Fed agreed to institute a 3rd round of QE on September 13th.
But unlike the first two easing efforts, this round is open-ended. If the Fed doesn’t see “substantial” improvement in the labor market soon, they’ll keep plowing $40 billion a month into the US economy until they do.
And that brings up a very important question…
What exactly does “substantial” mean?
Is the Fed looking for an unemployment rate of 7%, 6%, or maybe even 5%? The answer is extremely important. The lower the rate Bernanke finds acceptable, the longer this round of monetary easing will last. And the longer QE3 lasts, the more damage the US Dollar will likely have to endure.
Speaking of damage, investors have been selling the dollar since July in anticipation of the Fed’s recent action.
Take a look…
As you can see, the dollar has taken it on the chin over the past few months. And to make matters worse, the greenback sliced through important technical support in early September (red circle).
What’s that mean?
The dollar rally that started in mid-2011 is over from a technical standpoint. Once the red line on the chart was broken, it was lights out for the greenback.
Of course, the question everyone’s asking now is, “Where does the dollar go next?”
Let’s go back to the charts for guidance…
Looking at this long-term chart, you can see the dollar is forming a very interesting pattern in 2012… a head and shoulders. As you may know, these patterns are great indicators of falling prices down the road.
Now, to be clear, the greenback hasn’t yet formed the right shoulder. So it’s not a certainty that this highly bearish pattern will come to fruition. But thanks to the massive stimulus the Fed is now unleashing, the odds of this pattern playing out are greatly increased.
What’s it mean for the dollar?
Once the greenback breaks below the ‘neckline’ of the pattern, it won’t find solid support until 74… the lows of 2011.
And here’s where the question I asked earlier comes into play…
If “substantial” improvement means a target unemployment target of 5%, QE3 will last longer than many think possible. As a result, we could easily see the dollar drop beneath the 2011 lows.
Now, I can hear you asking, “Why’s what happens to the dollar so important?”
If the dollar breaks lower like I think it will, we’re going to see a hefty dose of commodity price inflation.
How do you capitalize on the commodity/dollar trade?
Subscribers to my Commodity ETF Alert are already prepared for the dollar’s next drubbing. They’re holding a number of important commodity ETFs, which are giving them gains of 10-25%. And if the dollar declines like I think it will, those gains will get much bigger.
If you’ve missed out on the commodity/dollar trade, don’t worry. It’s not too late to position your portfolio. In fact, I have another issue of the Commodity ETF Alert coming out next Tuesday. If you’d like to discover how to profit from the dollar’s downfall, make sure you check it out.
Until Next Time,
Justin Bennett
Category: Commodities, Technical Analysis
