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The weekly chart of the US Dollar Index against a basket of currencies shows strong historical support is located near $0.745. This marked the low point for the dollar in 2009 October. This support level is the upper edge of a wide trading consolidation band. The lower edge of this band is near $0.715. This low level consolidation was reached between March and August in 2008. A fall below $0.745 has a downside support target near $0.715. In this situation after the fall the strong resistance level is located at the old support level near $0.745. The historical behavior of the Dollar Index suggests a move below $0.745 could lead to several months of rally and retreat behaviour between $0.715 and $0.745.
The Dollar Index has developed a fan pattern. This is defined by an upper and a lower trend line. The lower trend line acts as a support level and allows the dollar to slide down this line towards the next horizontal support level, currently near $0.745. The upper trend line acts as a resistance level with a current value near $0.78. A sustainable rebound in dollar strength is shown only when the Dollar Index is able to move above $0.78 and also break above the historical resistance near $0.795.
The probability of a strong dollar rebound is low and the trend suggests there is a high probability of a fall below $0.745. This consistent dollar weakness will be reflected in other currencies and will support a continued rise in the price of gold. A sustained debasement of the US dollar does not provide a structural solution to the problems of the US economy. The already low dollar has not translated into a significant increase in US exports and domestic demand can only be stimulated by more credit spending. The strong downtrend suggests support at $0.74.5 will not be successful.
Intentionally or not, many see the US Dollar Index chart echoing with the first shot of a currency war.