US Dollar Index 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.

A weekly close below the low (75.20) of the current positive divergence could lead to an acceleration of the down trend as those anticipating a trend reversal give up their losing positions. This is the “this time is different” scenario but in reverse.

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:

The Technical Take: Very Dangerous Time For Dollar Index (Jun 19, 2009)

The Dollar Index: The Trend Is Your Friend (September 18, 2009)

The Technical Take: This Time Is Different (In Reverse) (August 21, 2009).
The technical picture for the Dollar Index is pretty straight forward. And while “everything under the sun” goes up when the Dollar goes down, it is still my contention that commodities will out perform equities if only because in this liquidity driven environment equities will be prone to sudden sell offs. As a reminder, you may want to review the article “The Inflation Indicator Meets The “Dumb Money” Indicator”.

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