US Dollar Forecast: Safe-Haven Until Proven Otherwise

The answer: the US dollar – which was up by 1.2% in two days alone.

Despite the Federal Reserve’s commitment to keeping interest rates bound at 0.00% – 0.25% until at least 2022, and M2 money supply which has increased by over $3.4 trillion in the last year alone, traders continue to flock to the greenback during times of deflationary fear.

Note the strength seen by the US dollar in the two days following the Fed meeting, which moved opposite to the sell-off across risk assets including stocks and commodities:

Should investors be concerned about further deflation to continue to hold US dollars?

Our analysis says yes.

Dollar Long-Term Perspective

For reference, the US dollar index closed at 96.6 as of June 15.

The dollar remains in a multi-decade rising trend which began during the 2008 worldwide financial crisis. Note the multi-decade breakout in 2014 (red callout) of the downtrend (turquoise) which began in 1985, and the resultant new rising channel which has developed since then (magenta).

The rule in technical analysis is: trends must be respected until proven otherwise. And the market for the US dollar thus remains in a rising trend until its lower boundary, presently at 93.0, is broken to the downside:

Resistance on the long-term chart exists between 100.5 – 103.5 for the US Dollar, shown above by the black double lines. A break of this resistance zone over the next 6 – 18 months will be the signal that the dollar has embarked on a major new up-leg, which would then target 115 or the upper rising channel (magenta) boundary as an intermediate stopping point.

Dollar Short-Term

Simply because the dollar is within a longer-term rising trend does not necessarily mean that it must rise over the short-term. Counter-trend moves may occur at any time across any asset.

However, in the case of the US dollar, it appears that we have just witnessed a counter-trend decline as stocks recovered between March and June. Now, an embedded primary rising trend will exert influence on the dollar again.

Note below the (blue) primary channel which began at the 2018 lows. The lower boundary of this trend channel was just successfully tested on June 11 at the 96.0 level. The bias is now for the dollar to continue to recover back into the rising channel, to eventually challenge the (black) 99.5 – 100.5 resistance zone again later this year.

Takeaway on the US Dollar

The US dollar remains in both short-term and long-term rising trends until proven otherwise.

In our work at www.iGoldAdvisor.com, we suggest that clients hold diversified defensive portfolios at this juncture, due to the expectation for another significant round of worldwide deflation to arrive later this year. US dollar-denominated assets such as cash and bonds, as well as gold and select gold miners, should form the cornerstones of defensive-minded investors for the remainder of the year and into 2021.