If you’ve focused entirely on the US Dollar Index, you may have missed the fact that - in general - for the Dollar Index to rise, foreign currencies must fall - and in some cases, that fall has been dramatic.  Let’s look at a few currency indexes (FOREX) to see the flip side of a strong US Dollar.  All charts are weekly charts.

First, the Euro Index:

The Euro rose in a strong uptrend throughout most of the last few years, supporting strongly on the rising 20 week EMA, but mid-2008, the support broke, the 50 week EMA couldn’t hold price either as expected, and we are now at new lows for 2008 and levels not seen since late 2007.  When looking at these charts, realize that the US Dollar ‘bottomed’ in March 2008 and formed a consolidation pattern before reversing.  It was difficult to imagine how far price could plunge until we see it here after the fact.

Next, let’s look at a currency related to the Euro, but one that has underperformed the Euro for most of 2008.

British Pound Sterling Index:

The British Pound enjoyed the same uptrend while the US Dollar suffered, but the Pound actually peaked in October 2007 similarly to the US Stock Market peak.  Price consolidated throughout most of 2008 before breaking the consolidation pattern and moving average support to reach new lows not seen since early 2006.

Let’s go to the other side of the globe and look at Japan.

Japanese Yen:

The Yen had a strong run into 2008, peaking in March and then falling sharply from that peak.  The Yen actually has held up stronger than most currencies over the last few weeks, which is a development on its own that is worth further analysis.  Price is roughly even from where it started the year.

Finally, let’s see the US Dollar Index which once was weak but now is strong.

The US Dollar Index:

It’s the strength in the US Dollar Index that has surprised many people and turned macro-trends upside down.  Commodities peaked when the Dollar formed its bottom, and the $CRB Index has fallen sharply from its earlier peaks when people once thought that index was invincible (and the Dollar was unsalvagable).

Intermarket analysis frequently begins with the US Dollar Index as a base to build the structure for cross-market trends, and the Dollar Index trend must be declared officially as “up” since forming higher lows, higher highs, and breaking above these levels and the weekly moving averages.  A positive moving average cross (which now looks inevitable) would be a further confirmation of a trend reversal underway.

Continue to watch currencies even if you’re not specifically a FOREX trader - you may pick up on insights you may have missed before!

Speaking of FOREX, Adam Hewison of the Market Club released a brief video on signals in the FOREX market entitled “FOREX in 90 seconds” which shows a brief overview of the Market Club strategies (using multiple time frames) and trading signals - it’s definately worth considering.