Significant Strengthening of the US Dollar

Aug 9, 2008: 11:01 AM CST

If you missed this on Friday, make yourself aware of it now – the US Dollar Index surged significantly on Friday, breaking above key resistance, and possibly altering inter-market dynamics for some time to come.

Let’s see the daily chart:

After building a lengthy and evident positive momentum reading on the bottom-panel indicator, price finally surged higher and has officially completed a trend reversal – the Dollar Index has formed a higher low, higher high, and then taken out the higher high and now broken above all moving average resistance on the daily chart.

Stated with emphasis:  The US Dollar Index is now in a confirmed uptrend on the daily chart!

This has the potential, as mentioned earlier, to change everything for the time-being.

Gold has broken beneath its key support at the 200 day moving average;
Crude Oil is plunging and is set to test its 200 day average $5 per barrel lower
The $CRB Index (shown later) has broken its 200 day moving average

Keep in mind that a stronger dollar can hurt multi-national companies, whose profits are not as inflated when the Dollar currency is weak.

Now to the Weekly Chart:

In addition ot breaking daily moving average resistance, the Dollar Index broke weekly resistance via the falling 50 period EMA – this is a significant development which has not happened since 2006.

Price has not yet made a higher swing high, but if the current strength continues, it will do so, and a change in trend on the weekly chart would be mighty significant for all inter-market relationships – continue to keep your eye on this chart.

Let’s take a quick peek at the broader commodity index (the $CRB) Weekly:

The Index has plunged from its 470 value peak and has just closed beneath the rising 50 week EMA for the first time since 2007 – that is also a significant development.

As was witnessed Friday with the surging stock market indexes, all this is quite bullish for the broader US Equity Market, as it helps ease some of the major worry that inflation will be a significant burden on a weak economy.  If this trend continues (stronger dollar, lower commodities), then we could reasonably expect the US Equity Market to continue higher as well – but this is only one component in the broader economic picture, and one component does not create a new bull (or bear) market.

Continue to watch these interconnected trends very closely, and be prepared to position (or reposition) accordingly if you have not done so already.

Track trading or analysis signals across these and broader commodity (futures), currency, or stock market developments on the custom charts at the Market Club (sign-up here), and follow the daily commentary of Adam Hewison and staff as they track these changes and many more.

1 Comment

One Response to “Significant Strengthening of the US Dollar”

  1. Richard Says:

    The US Dollar has had a strong increase — its gone parabolic up on interest rate differentials; currency traders bet this last week that the ECB is going to lower interest rates to stimulate growth. So they shorted EUR/USD.

    And the currency traders shorted the Euro heavily relative to the Yen making the EUR/JPY, the yen carry trade unwind; this benefited those in indexed ETFs:
    DRR Double short euro rose 8%
    DTO Double short crude 16%
    BOM Double short base metals 12%

    Given its rise, the Dollar is going to correct on Monday, and pushing above 76 is going to be difficult even as oil, which makes up a large part of the CRB, falls lower again. Yes, the CRB is going to reach $380 soon, and this is going to be strong resistance.

    I do not share your bullishness on the dollar or on stocks, I am very bearish on both; and present a case for gold and short selling in the linked article.