I guess those were the good old days, before the credit crisis renewed the world’s faith in the dollar.

Today if you take one look at the chart of the U.S. Dollar, the only thing you see is strength.

This is a chart of the U.S. Dollar Index ($USD) which charts the dollar’s strength against six major currencies. The first thing that you’ll notice is the dollar’s 22% move from 71 to around 86.

But the second and more interesting development is a new bullish diversion.

A bullish diversion occurs when an indicator such as the Slow Stochastic is showing a move from overbought (80 or above) to neutral (50 – 80)… while at the same time the stock does not really drop in price.

If you’ll notice, the Slow Stochastic has been dropping since the middle of January. Yet the stock price has remained virtually flat. This is a bullish diversion in its purest form.

Typically when you see this happening, it gives you an early indication that prices will move higher. If this bullish diversion is right, then we could very well see the dollar rally past its peak at 88 and go past 90 by the end of the year.

For you FOREX bugs out there, taking a long-term bullish position in the dollar should pay you greatly by the end of the year.