The dollar’s weakness versus the euro in recent weeks seems bizarre only if you imagine that it will continue. My guess is that the relationship is about to reverse, demonstrating yet again that the swings of the dollar and the euro over the last year-and-a-half have been gratuitous and technically driven. Notice that the selloff that followed July’s 84.75 peak, although fairly steep, was not vertical. One might have expected worse, given the viciousness of the trap sprung on bulls just a few deceptive ticks above May’s high. Instead of falling apart, however, the dollar merely stairstepped lower after a wicked two-day downdraft.

The process has continued, becoming more labored over the last two weeks as sellers’ potency has waned.  Now, my guess is that DXY is about to fake out bears with a feint beneath June’s 80.50 low before turning higher with the same energy that sent it tumbling in July. _______ UPDATE (September 3): The dollar is up about 2 percent since the forecast above first appeared, although the rally did not require a fake-out beneath 80.50 to get going; the actual low was 80.75. Now, with just a small push above 82.49 (an ‘external’ peak recorded on 8/2), buyers would refresh the bullish energy of the hourly chart.