We’ve been keeping a close eye on the US dollar, which as a safe haven, continues to move inversely to equities.  I remember reading Aftershock a couple of years ago.  It made the very convincing argument that the US dollar would be destroyed by disastrous fiscal policy and runaway debt.

The advice was to dump everything into euros and ride out the coming storm.  Needless to say, this otherwise terrific book demonstrated the risk of putting any investment advice into writing — a fear I battle on a daily basis.

DX has been in a huge falling channel for years — a fact many dollar bears have duly noted.

Since 2005, however, the major direction within the channel has been a slightly downward sloping sideways movement (the white channel lines.)  We’re currently working on our third thrust up within that system — shown by the small purple channel over the past 2 years.

continued…This might continue on, but for the big purple channel.  I’ve already adjusted it slightly to reflect the dollar’s recent strength (it was strong enough to nullify a couple of pretty well-formed H&S patterns.)  Any further adjustment and I’m afraid it starts to lose its validity.  Here’s a couple close-ups:

So, not only is DX butting up against the big purple channel bound, it’s hit the upper bound on the white dashed channel and the mid-line on the smaller purple channel.

On top of all that, it just completed a rising wedge, visible here on the daily chart.  It should get back down to the white-dashed line without too much trouble.

From a harmonic standpoint, DX recently tagged the 1.618 of the red pattern, and the 1.272 of the larger purple pattern.  We’re pretty much in no-man’s land with respect to the large yellow pattern — so I’m inclined to think there’s more upside and that the Point B was the October 2011 80.43 high for a Bat pattern — targeting 87.07.

Such a move would obviously rise beyond the big purple channel, but it needn’t arrive for quite some time (ideally mid-October, but in any case further away than right now.)

Mix this all together, and I think DX is likely to move down sharply from its current levels in the next two weeks, probably to the lower bound of the smaller solid purple channel.  The lower alternative is the white, dashed channel line at 79.30; a less drastic decline would be the bottom of the rising wedge (and channel mid-line) around 81.63.

Good luck to all.