Where dollar will go?

Over the past half a year or so, US dollar has had a fantastica run and has significantly strengthened due to expectation of higher interest rates and risk of inflation. But as any assets that have gone virtually one way up, dollar has been a bit ahead of itself and sooner or later it would have to at least take a rest. This is what has happened in the past couple of months, during which dollar has declined quite a bit. Since dollar is the currency used to price virtually all the commodities in international trades, its valuation has a huge impact on the prices of commodities. The obvious question interested to traders and investors is where dollar is heading. I wish I knew but I don’t. However, we may get a hint from the dollar’s price action to get an educated guess.

Technically, the US dollar is at an important juncture but shapes up in a bearish fashion. See the chart below for the US$ ETF (UUP). As you can see, dollar is in the process of forming a head and shoulders pattern. While there is no certainty, this pattern most often is bearish, leading towards more downside ahead. So watch this closely in the next days or weeks to see if dollar can overcome this bearish formation and break out to the upside. If not, then watch out below. A weakening dollar often leads to the strengthening of precious metals, which technically is indeed shaping up in a bullish fashion.