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There are 185 different currencies on planet earth, and the US dollar is the most powerful of all currencies—the world’s reserve currency.
On Mar. 26, the US dollar closed above its 200-day simple moving average (SMA), snapping one of its longest streaks below the 200-day SMA. This could be considered an important milestone. However, on Monday (Apr. 5), the US dollar closed back below its 200-day SMA.
The chart below plots the US dollar against the percentage difference between the US dollar and its 200-day simple moving average (SMA). The lower graph only shows positive values to filter out some noise.
The next chart plots the performance of the US dollar against the S&P 500 and gold. Here are two things to keep in mind:
Gold’s performance for the first 1-3 month following the signal date was dismal. Longer-term performance (6-12 months) was still weak, but in 1979 gold soared as much as 238%
The performance tracker below includes forward returns for all signal dates and forward returns ex 1979.
Climbing back above the 200-day SMA after at least 200 days below has been a positive for the US dollar. Even though the US dollar is back below the 200-day SMA—as in 1987 and 2003—I don't expected continued weakness for the coming year. However, a move back above the 200-day SMA is needed to neutralize a 1987 and 2003 repeat.
In general, the US dollar signal was positive for the S&P 500 and negative for gold although the failure dates of 1987 and 2003 had no consistent affect an either stocks or gold.
Based on this historic analysis, selling gold rallies and buying S&P 500 pullbacks have the best odds of positive returns.
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