Sunday, November 1, 2009

Dollar Technicals

Figure 1 is a weekly chart of the US Dollar Index (symbol: $DXY). The pink labeled price bars within the ovals are positive divergence bars.

Figure 1. $DXY/ weekly

The US Dollar Index remains in a downtrend. However, a weekly close above 76.58, which is the high of the recent positive divergence bar, would nullify that down trend, and in all likelihood, the Dollar Index would trade in a range. A close above the pivot at 79.46 would turn the down trend into an uptrend.

Some of the prior articles on the Dollar Index, which explain some of the strategies that I use to arrive at these conclusions, are located here:

While the technicals from my perspective are pretty straightforward, the question remains what impact will a higher Dollar have on equities and commodities. The common assumption is that a higher dollar can only mean one thing: a flight to quality as the reflation or risk trade is over. I am not sure that is going to be the case here. Equities do look weak as many sectors have been breaking down over the past month, but gold and crude oil still look very strong despite the recent market turbulence. So if we do get that higher Dollar, it will be interesting to see how the commodities react versus equities.


Anonymous said...

Damn, now I'm beginning to think that crystal ball do exist after all ;)

Keep up the excellent (and very timely) work!

Guy M. Lerner said...

Luck plus some hard work too