Dollar Index Headed for Rapid Collapse: Chart - Article Example

Dollar Index Headed for Rapid Collapse: Chart The article in discussion is about the weakening of the US dollar and what effects it will have on other currencies as a result of currency wars. The currency wars also known as quantitative easing is majorly determined and controlled by the US dollar. If the US dollar is weak or low, then the other currencies such as the Japanese Yen, Australian dollar, Korean Won or even the Chinese Yuan becomes pressured. As the US dollar also becomes weak, the intensity of the currency wars increases to greater levels.

There are downsides to the weakening of the dollar which are well indicated and explained by a dollar index chart which indicates the third round of quantitative easing (QE3). This article explains the implications indicated by this chart.The dollar index chart is used to indicate the strength or weakness of the US dollar which can be said to be the basket of almost all the currencies including even the Euro, British pound and Swiss franc just to mention a few. The dollar index chart contains three significant features: the uptrend line, the support level and the historical support.

The analysis of the three features mentioned is what has led to the conclusion that if the dollar continues in this trend which is leading downwards with low probability of changing the trend in the next several weeks, then the US dollar will be declared weak.The uptrend line (from September 2011-September 2012) indicates a change direction of the dollar strength. This change in trend direction (where the dollar fell below the trend line) provided an early warning to the trader that things were headed in a wrong direction and action had to be taken soon and hence they had enough time to move to the side of the market that was correct and closed other side trades.

The second feature (support level) indicates both the support and resistance of the dollar. Based on probability in this case, the level (which is at 79) will not provide a strong support of QE3 hence the traders will use this opportunity to build other positions. Consolidation behavior that is temporary is bound to take place at this time due to this statistics. The historical support is near 74.5 which is on the upper edge. If it falls below 79, then it will mean that the dollar has weakened and hence affecting other currencies as well.

This however will be determined within the next three to four weeks.Based on the information provided by the dollar index chart and especially the three features discussed above, the probability that the dollar will once again move in an upward trend is very low. Once the historical support on the dollar index falls below 79, then the downward trend of the US dollar will have been confirmed. This downward trend will be an indication of the weakening of the dollar. The weakening of the US dollar due to the currency wars will hurt the export business and the economies in general.

Work CitedGuppy, Daryl. “Dollar Index Headed for Rapid Collapse: Chart” CNBC. September 17, 2012.