Last week’s 3.3% gain in the dollar was the biggest weekly gain since the dollar peaked some seven years ago.
The chart below chronicles the decline in the dollar over the course of two long downward legs, the first leg running from 2001-2004 and the most recent leg from the end of 2005 to the present.
From a technical perspective, it is still too early to say that the dollar has begun a decisive new uptrend. Since 2001, there have been quite a few 3-4 month countertrend rallies and one full year (2005) in which the dollar looked to be making a new bullish leg before reverting back to the long-term downtrend.
That being said, the dollar is nearing the top of its trading channel for the first time in over a year. Looking at macroeconomic and other factors, I believe that a channel breakout is the most likely scenario, which will bring a new technical twist to currencies, commodities, bonds and equities.