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November 01, 2009

Dollar Technicals
by Guy Lerner

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.

Some of the prior articles on the Dollar Index, which explain some of the strategies that 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)

While the technicals from my perspective are pretty straightforward, the question remains what impact will a higher Dollar have on equities and commodities. The common assumption is that a higher dollar can only mean one thing: a flight to quality as the reflation or risk trade is over. I am not sure that is going to be the case here. Equities do look weak as many sectors have been breaking down over the past month, but gold and crude oil still look very strong despite the recent market turbulence. So if we do get that higher Dollar, it will be interesting to see how the commodities react versus equities.

Guy M. Lerner
http://thetechnicaltakedotcom.blogspot.com/

Disclaimer: Guy M. Lerner is the editor and founder of The Technical Take blog. His commentary on the financial markets is based upon information thought to be reliable and is not meant as investment advice. Under no circumstances does the information in his columns represent a recommendation to buy or sell stocks. Lerner may on occasion hold positions in the securities mentioned in his columns and on the Web site; in all instances, all positions are fully disclosed at http://thetechnicaltakedotcom.blogspot.com/. However, their positions may change at anytime. For more information on any of the above, please review The Technical Take's full Terms of Use and Privacy Policy (link below). While Lerner cannot provide investment advice or recommendations, he invites you to send your comments to: guy@thetechnicaltake.com.

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