Don't Be Fooled By the Dollar's Rally

04/14/2010 10:53 am EST

Focus: MARKETS

Curtis Hesler

Editor, Professional Timing Service

Curtis Hesler, editor of Professional Timing Service, says the recent rally in the US dollar won’t last, and it’s a good buying opportunity for gold.

There is likely a bit more on the up side for the dollar before it turns, but this final phase of the rally will press precious metals and crude back. It will provide us with a final buying opportunity before the next leg in the commodity bull unfolds.

Here is what is developing. First is sentiment. Everyone on the Street was bearish and was selling the dollar at its late 2009 lows, but there is nothing like a good rally to bring out the bulls. I guess folks just like to buy high and sell low.

There are, of course, those dyed-in-the-wool dollar bears who refuse to recognize the cyclical aspects of the markets. Nevertheless, I am currently seeing more articles espousing a dollar recovery than [those that] talk about a return to new lows.

A good number of the dollar bulls are basing their stand on the weakness in the euro. There is some truth to this argument. The euro has been pushed from over 1.50 in early December to about 1.32 lately, and there should be good support at 1.25-1.30.

The euro is setting up for at least a short-term trading rally. I believe fundamentals will support this. Germany is going to orchestrate assistance for Greece without getting personally committed. The Germans will use the crisis to augment their position of power in Europe—something they have not had for many years.

Things will appear better in Euroland soon, and that will give the euro support. As it finds support, dollar traders will begin selling. The technical omens are present in the dollar also.

Bottom line, the dollar rally looks like it has a little more life left in it, but not much. It may even venture toward 83.50 (it closed near 80.50 Tuesday—Editor), but my indicators are telling us to be ready to use a last-ditch dollar bounce to our advantage.

The best way to play the next turn in the dollar is to use the last phase of the dollar rally to build positions in precious metals. You need to do this now before the dollar’s top is in. We have a little time, but not much. I expect that the dollar will find its final rally high by the end of this month. As the precious metals markets pull back in response to a stronger dollar, we will see some magnificent buying opportunities.

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