Critical Test of US Dollar and CRB Index Coming Up

Aug 6, 2008: 10:15 AM CST

There could be a curious inflection in the current price movement of the Commodity Index ($CRB) and the US Dollar Index ($USD), which could make or break the current trends in place.  Let’s see what I mean.

The US Dollar Index:

The US Dollar Index has experienced a lengthy downtrend, has paused, consolidated, formed higher highs and higher lows, and officially reversed its downtrend to an uptrend on the daily time frame (not yet on the weekly).

The breakout from the triangle consolidation was encouraging, and we are just shy of achieving the target (height of the triangle plus the breakout), which will complete an “A to B equals C to D” relationship (almost like a zig-zag on the chart).  This price projection target is roughly $74, which is almost achieved, but interestingly enough, the target corresponds almost perfectly with the falling 200 day moving average.

One would expect some sort of price correction or retracement at this level (which would be bullish for commodities short-term), but should dollar bulls push price beyond the 200 day SMA, that would be a remarkable and definite shift – one which could officially reverse all prior trends for some time to come.  I strongly recommend you keep an eye on this market for signs of continued strength.

The CRB Index:

The commodity indexes trade almost perfectly inverse the US Dollar Index, such that strength in the dollar is often bearish for commodities, which is what has happened recently with the dollar’s rise.

The CRB Index faces an almost mirror image of the critical test for the US Dollar – this time, the test is to see if commodity buyers/bulls can support the index at the critical $395 level, which corresponds with the 200 day simple moving average – if bears push price through this level, then we could see a significant shift (downwards) in the price of commodities (as many hope).  Breaking through this line would send crude oil and gold (and other commodity) prices even lower.

However, a successful test of this level, which likely has higher odds, could mean a temporary shift back to ‘the way things were’ with short-term higher oil and gold prices.  At a minimum, I do think we’re due for a retracement back up, perhaps to test the $420 level which corresponds with the 20 day EMA.  If we don’t get this retest soon, all bets are off and we could see a protracted slide – the protracted slide development would surprise me much more than the gentle retracement.

Follow these markets, realize what the broader picture may mean for the US Stock market or the market you are trading, and pay attention to inter-market trends.

1 Comment

One Response to “Critical Test of US Dollar and CRB Index Coming Up”

  1. SteveW ( Says:

    Hey Corey,

    Well if parity in technical analysis means accuracy then you and are I right on queue. I wrote essentially the same article about the U.S. Dollar on August 1st, and am dilligently watching for a significant turn around. If you look at the weekly chart, the bullish divergence in the MACD (I use PPO) is very obvious.

    Of course I agree that a stronger dollar will have a further impact on oil and gas prices (commodities in general), and will by watching what happens with the economy. Here’s to sitting on the edge of our seats, waiting for a trend reversal!