Wednesday, 26 August 2009

US Dollar poised to breakout of wedge pattern against Swiss Franc


There is growing technical evidence that the US dollar index could be headed higher in coming weeks as positive divergences are emerging in the current basing pattern.
The chart above highlights a remarkable descending wedge pattern in which the US currency appears to be preparing to make a decisive move upwards against the Swiss Franc.

Looking back to the top of the wedge pattern it coincides almost exactly with the beginning of the March recovery. After the S&P 500 bottomed on March 6th and the early adopters became more adventurous making allocations to riskier assets again, the safe haven appeal of the dollar began to decline. Since then the dollar has moved steadily downwards into the thin end of the wedge with no further room to postpone the directional decision that will be made imminently.

The question remains - if the greenback is header higher, does it suggest that the risk aversion trades may be ready to come back into play again or that there is a new dynamic at work which sees less systemic risk and a more upbeat view of the comparative advantages of the US recovery scenario?

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