The dollar has traded up and down in a tight range this year. And I see it setting up for a big breakout.
On the fundamental side, the U.S. dollar has two things going for it.
1) U.S. economic growth has been far stronger than in the euro zone or Japan. That puts a tailwind behind the dollar, relative to the euro and the yen.
2) The dollar is still the go-to safe haven currency, causing a bid up in price any time global market fears are stoked.
While the dollar’s strength has been tamed in the short term, an ascending triangle pattern is building. This suggests a strong probability of an upside breakout which, when it happens, will propel the dollar’s strength to levels not seen since early 2010. Take a look…
This chart of U.S. dollar futures shows a horizontal resistance level, at 85. The bottom of the ascending triangle pattern is formed by successively higher lows, a sign of increasing enthusiasm and strength on the part of dollar bulls.
These patterns usually end with a breakout of the horizontal line – in this case, a break above 85. The resulting move is usually swift and strong. My analysis shows a breakout above 85 should send dollar futures all the way up to 94, slightly above the last major peak made in early 2010.
While it’s premature to call this an upside breakout, two weeks ago we got another clue that suggests dollar bulls are in control. That was a bullish engulfing candle pattern. I’ve circled it on the chart above.
This weekly pattern shows a change in control… which is now firmly in the hands of dollar bulls. I’ll be watching the 85 level closely. A break above should lead to a big move higher in the dollar.