After the recent interest rate hike by the U.S. Fed, we verified all our charts to understand which market is most attractive for investors. Interestingly, we found one clear winner. The U.S. dollar has the most attractive chart setup, and it’s worth buying according to our view.
The daily chart makes our point. The dollar broke through a long term resistance area, and, in a textbook way, resistance became support. In November, support was successfully tested, and the dollar went higher.
Now here it becomes interesting. The most common mistake by investors is that their belief that news drives markets. Nothing is further from the truth, and below chart makes that point. The dollar broke out in November, confirmed its breakout slightly later by testing support successfully, and only continued creeping higher after the Fed’s decision. News is not driving markets, news is mostly a function of ongoing trends.
Back to the dollar. The chart has been suggesting strength since this summer. A pattern of higher lows is a clear and distinct pattern of an upward trend, regardless of our opinion or fundamentals. Many investors were thinking that gold entered a new bull market this summer, and, consequently, the dollar could impossibly strengthen. This is one of those mistakes investors tend to make: they draw conclusion based on what they like to see, rather than what is truly happening.
The dollar looks strong since this summer, and is only looking stronger with its recent breakout. We believe the dollar is worth buying, and it’s one of the few assets that looks strong since the Fed’s interest rate decision of this week.