Tuesday, 28 November 2017

Gold Price and US Dollar Index (DXY) Triple Tops - Part 3

When one is looking at the LT monthly US Dollar Index (DXY) chart from 2003 to 2017, we see a cup and handle (C&H) pattern.

Simply put, the cup is the basing from period of 2003 to 2015. As they say, "the longer the base, the higher the space".

No matter how you look at it, this is a bullish DXY chart, meaning it's bearish for gold.

Or is it?

Monthly US Dollar Index (DXY) price chart from 2003 to 2017
Monthly US Dollar Index (DXY) price chart from 2003 to 2017
(Click image to enlarge)

Now, let's extend the period that we cover from 1986 to 2017. It looks like 2 cup and handle patterns being played out back to back. And the previous C&H pattern is almost identical to the current C&H pattern. But the previous C&H handle fails at the handle after completing a triple tops.

Evidently, the 16 years base building in the USD from 1986 to 2003 ends miserably. It's a head fake, not a handle.

Monthly US Dollar Index (DXY) price chart from 1986 to 2017
Monthly US Dollar Index (DXY) price chart from 1986 to 2017
(Click image to enlarge)

The previous C&H pattern takes a total of 16 years (from 1987 to 2003) to complete.

The current C&H pattern has been developing for 13 years (from 2004 to 2017).

So there're technical arguments for both the bullish and bearish case. Is the last few years in DXY forming a handle for further upside or head fake for further downside?

I can't decide which. But we could be at the critical junction here. If DXY price is falling below the handle (under 90 on the chart), then i would say with some confidence that this is bearish for USD (and bullish for gold). This scenario simply repeats the outcome of the previous technical chart pattern. We don't have to wait for more than a few months to confirm this.

If DXY prices continue to match upward from here, we will have to wait longer (maybe much longer) to confirm bullish or bearish outcomes.

One additional important thing to note is that DXY is in secular bear market as the current base is lower than the previous base, and the current "handle" is lower than the previous "handle". It's the bear who has the upper hand in the dollar. In other words, it's the dollar bulls who need to prove themselves.

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