What the Dollar Bounce Does Not Mean

More evidence of economic slowing will encourage the centrists and moderates at the ECB to have greater confidence that price pressures will ease. This will take time.

Just like the dollar's recent gains do not mean that it has entered a bull market, it also does not mean that the rally in commodities is necessarily over either. Despite the talk, I do not find stable and consistent correlations between the U.S. dollar and commodity prices in general.

While oil prices have pulled back from their peak, we are still talking above more than $110 a barrel. The dollar's decline may have been a contributing factor to the rally in oil, but it is not the only factor. The same argument can be made for industrial metals and foodstuffs. For example, the doubling in the price of rice has little, if anything, for example, to do with the decline in the dollar's value.

Watch the Euro

What does this all mean for curerncy market participants? Although I am looking for the dollar's bottom to broaden out, it may be premature to count the perennial dollars bears out quite yet. While the euro's techical tone has deteriorated, it has hardly fulfilled a minimal retracement yet.

Rather than sell in the hole, short-term and intermediate-term traders may be better served selling into the next euro bounce. In this environment, I would imagine that the yen will be relatively range-bound, making the yen crosses, like those against the euro or sterling, more a function of them than the yen itself.