As the U.S. dollar falls over the edge, is it time to buy gold? Cross-currents under the surface in these charts say buyer beware

The dollar definitely fell under support yesterday so I can toss out my previous charts associated with a diagonal up idea pointing toward 92 or above. I can also report with some satisfaction, that the EW idea of a certain self-proclaimed EW-expert forecasting service in Georgia has now also been proven wrong! Tony Caldaro has his own view of the dollar that he's marked for a while as downtrending, so hat's off to Tony and I'll place his daily chart of the dollar as the first one below. We'll have to consider it as a strong contender for where the dollar goes. My other alternative Elliott Wave idea for the dollar is that it completed a leading diagonal upward, in which case the correction underway will be very deep but not go underneath 70.70. If it completed an "A" wave, then this is part of a "B" wave correction that could retrace 50% of the way back to 70.70, i.e. to 80.15. That's actually rather close to the 79.88 symmetry target that I have described on my daily chart of the dollar (second chart below). My monthly chart of the dollar showing the Fibonacci retrace levels is the third chart below. Now - isn't it interesting that gold, the euro, and the yen didn't move above resistance, as the dollar moved under support?

The charts below for gold, euro and the yen will illustrate what I mean. Neither one of these moved above their recent swing highs in a manner commensurate with the dollar moving under its recent swing low. Of course, that could still happen - but the fact that they did not, indicates that there are other things going on too. But first - the fourth chart below is $UST, the 10-year Treasury notes - Treasuries actually moved up yesterday, but it's too soon to think that's anything other than a pullback on the way to the lower targets we've described for Treasuries (use the "Bonds" label at right, to locate those posts). This little pullback is part of what makes me wonder whether we are really looking at the "dollar into the abyss" scenario that so many analysts are bracing for.

Now for gold - I've described the two primary competing counts for gold (use the "Gold" label at right to locate those posts), and I must say that gold amazingly still did not trigger above its recent swing high levels to shout that it's moving up in a massive third wave to much higher levels. If it does, I'll be glad to agree that's the direction - but not until then. Similarly for the euro - I recently described a triangle pattern that can point the euro to much lower levels. Yes, the euro moved higher and even above its 200-day moving average - but it did not (yet) negate the triangle. If the euro does negate the triangle by moving above its prior swing highs (and particularly 144 - now, there's a Fibonacci number too!), then it will be a "triangle trap" paving the way for even higher levels - but we have to let it prove that first. Until then, the euro is still within the bounds of a triangle and still within a chart pattern that tends to point it downward.

The yen probably does the best job of illustrating a crossroads. A while ago I had pointed to the consolidation range and said, if wrong, don't be wrong for long! Well the yen made that sound silly, as it moved lower, then moved higher, and dropped back again. That advice does seem much more pertinent now - after this extension of its consolidation, and with its moving averages converging tightly to its 200-day moving average, the yen appears poised to make a major move. Will it be up or down? It looks like investors and traders should be prepared to follow it either way.

So, when we look at these other charts of instruments that can be expected to move strongly in correlation to the dollar, we don't find the definitive confirmation that the dollar is rolling over to crash down to new lows. The dollar looks to me like it completed a 5-wave drop from 2001 to early 2008, with the rally since then having pushed to almost or about a Fibonacci .382 retracement. What happens next depends a lot on what the 5-wave drop to 70.70 "completed" in the bigger picture. One potential is that it drops to about 80 (or as low as 77 or even (for a flat's c-wave to complete a pullback wave (2) down to 75.40-ish), then moves back upward again to a range about 95.80 to 96 or above.

There certainly are fundamental reasons to be concerned that the dollar takes a beating, based upon efforts such as described in these articles:
Monetizing the Debt - Explanation For Non-Economists, Bankers and Other Laymen at the PrudentInvestor blogspot (5/8/2009);
Schaeffer's Media Outtake: Treasury Yields, SPX Moving in Tandem: Fed may have a balancing act on its hands at SchaeffersResearch.com (5/8/2009). One of Bernie Schaeffer's comments is, "While the rise in 10-year rates is certainly a concern from the standpoint of the sustainability of the economic recovery – and one that the Fed may need to soon address – what is unmistakable from the accompanying chart is that over the past two years, rising rates have been consistent with rising stock prices, and falling rates with falling stock prices. There is no guarantee that this relationship will continue, but it is a trend in motion." [see his chart in his article depicting the correlation]

So I don't want anyone to ignore the bearish case to be made for the dollar. I just want to point out that other charts are cautioning that the dollar might not be ready to fall into the abyss, quite yet. If we see U.S. Treasuries, as well as gold, the euro and the yen make correlating movements - with bonds deeper than our symmetry pullback targets, and gold, euro and yen spiking to new highs - then we can view the dollar more bearishly.