[THS] Dollar Primed for Collapse by End June: Charts

[The Harder Stuff in news and commentary]

http://www.informationclearinghouse.info/article25576.htm

Dollar Primed for Collapse by End June: Charts

By: Daryl Guppy | CNBC Contributor

May 30, 2010 "cnbc.com" -- 26 May 2010 -- The dollar's recent strength has been
explained by most market analysts as a result of the euro weakness rather than any
fundamental support for the greenback. In fact, a closer look at the dollar's chart -
particularly the dollar index - suggests the currency may be primed for a collapse.

The dramatic dollar index rise from $0.81 to $0.87 in recent weeks shows the chart's
developed a dramatic and possibly dangerous parabolic trend. This trend has four
important features.

The first is the way it captures an acceleration in behavior. The trend starts slowly
and then gathers speed, rapidly moving up with increasing volatility.

The second feature is the shape of the curved parabolic trend rise. This is not a true
parabolic curve because as the trend accelerates the curve changes shape until it
becomes vertical. It’s the vertical section of the curve which is most useful because it
provides a exact date when the trend will inevitably collapse.

This type of trend line curve was first identified in the 1930’s and it was mistakenly
called a parabolic curve. We continue to use the name, even though it is not an
accurate description. In the 1930’s this was a rare behavior. In the last decade this
curve has become increasingly common as volatility has increased in modern
markets. This type of trend should not be confused with the parabolic Stop and
Reverse indicator.

The third feature of the parabolic trend line centers on the candles that build the
pattern. Every day a new candle is added to the right of the previous days candle.
Eventually, and inevitably, a candle will move to the right of the vertical section of the
parabolic trend line and signal and end to the trend. The trend has a final ending
date that can be calculated in advance using the vertical section of the trend line.

The fourth feature of the parabolic trend line is the high probability of a very rapid
collapse in the trend. A good example is the parabolic trend in the oil market in 2008.
When this trend collapsed the price dropped from $145 to $90 in 13 weeks.

The dollar index suggests the greenback will continue to stengthen until the end of
June, with a target near $0.89-$0.91, before it collapses to a downside target of
$0.81.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the
Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on
CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia,
Australia and Europe.