Don’t Bet On a U.S. Dollar Collapse Just Yet

Given all the negative news, one would think a dollar collapse is imminent.  Such a scenario would send the price of nearly everything into the stratosphere in a matter of weeks.

But don’t go running for the hills just yet…

The rug may get pulled out from underneath the U.S. Dollar bears.

Why?

The debt problems in Europe are coming to boil again.  Ireland is begrudgingly accepting a bailout and now Portugal and Spain are coming into focus.  The whole situation is a nightmare for the European Union.

The last time we saw this type of stress was when Greece was on the ropes.  In early 2010, there were fears of Greece buckling under debt pressures.  The news sent the Euro plummeting downward for months.  Of course, this sent the U.S. Dollar surging to the upside.

Are we about to see a big break higher in the dollar?

If you take a look at a monthly chart of the U.S. Dollar Index, you’ll see something interesting…

Take a look at the green trendline.  This is a rising support zone the dollar has reacted off in the past.  Notice how the dollar is finishing strongly to the upside in recent weeks (blue circle).

We saw the same thing in December of 2009…

You can see what happened the last time the dollar hit this support area. It went up for months and made dollar bulls some nice returns.  Meanwhile, the bears were sent into hibernation licking their wounds.

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