Figure 1 is a weekly chart of the Dollar Index (symbol: $DXY). In our last look at the greenback I stated: "in all likelihood, this is the end of the down trend for the Dollar Index", and this is now fact! A weekly close over the high of the positive divergence bar (i.e., price bars marked in pink within gray ovals) has stymied the down trend. The highs of these positive divergence bars should act as resistance on the way back up.

Figure 1. Dollar Index/ weekly

However, the important questions are: 1) is this a new up trend?; 2) is this a counter trend rally within a larger, ongoing bear trend; or 3) is this a consolidation leading to either a continuation of the past down trend or a new up trend?

For now, this looks like a counter trend rally within a larger bear trend that should end around the down sloping 40 week moving average - that is, when price meets up with this important moving average. An uptrend will emerge on a weekly close greater than 79.46, and I cannot see that happening without some backing and filling, so I don't see this as a new up trend (yet).

Looking at this issue from another perspective, we have Figure 2, which is a weekly chart of the PowerShares DB US Dollar Bear (symbol: UDN). This moves inversely to the Dollar Index. The clustering of negative divergence bars (i.e., prices bars marked in pink) was a sign that the upside was limited for this ETF (or the down side was limited for the Dollar). Support is at 27.70, and a break of this level would suggest a more definitive upside move for the Dollar Index.

Figure 2. UDN/ weekly

For now, I have a "sell" signal out on UDN and the uptrend in this issue is over until another "buy" signal comes into play. Last week, UDN was a hold, but this week it is a "sell".