US Dollar Index In Tight Consolidation

Seems like this week I spent a good deal of time discussing Gold and Crude Oil this week, so let’s look at a related market that normally trades inverse these commodities - The US Dollar Index.  It might give us clues as for what to expect in these markets.

US Dollar Index Daily:

I wish the Dollar chart was showing more clarity, but like all other markets including the S&P 500 (US Equity Indexes), it seems to be poised in a tight consolidation (perhaps even ascending triangle) where we’ll know soon enough in which direction it will break, but it’s still better to wait for the actual break (above resistance or below EMA support) before ‘guessing.’

Structurally, we’ve completed a 5-wave Impulse to the upside (seems the 5th wave was the longest), all of which is likely part of a larger fractal that is resolving in a sideways (or triangle) correction.

I see an ascending triangle (traditionally bullish) pattern forming above confluence EMA (20 and 50) support which lends us to believe a bullish break could be in order, but there is also a negative divergence forming under price.  Reference what happened in November the last time we saw such a pattern form - it led to a correction downwards.

There’s widespread belief that the Economic Stimulus Plan will create downward pressure on the Dollar but that hasn’t been seen just yet.

Officially - and until proven otherwise - the Daily chart is in a confirmed uptrend, as evidenced by higher highs & higher lows (see the 5-wave count) and also price is above all three key moving averages, and they are in the ‘most bullish orientation possible.’  Bears need to watch out for those structural realities at the moment.

What are the short-term implications?

If the Dollar Falls (breaks support), it will likely cause a rally in Crude Oil and other commodities including gold (which is challenging resistance).

However, if the Dollar manages to break out to the upside and challenge resistance (and overcome it) at $88, then expect new lows in Crude (as low as it is) and the downward swing in gold to be realized.

Everything is just so neatly balanced for the moment - perhaps that won’t last long….

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