Bye-Bye or Buy the Dollar?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheLFB-Forex) -- The Dollar Index (DXY) technical reviews show that near-term 80.00 resistance will be very hard to break without an implosion in global equity market trade. The same price was pivotal from 2004 to 2010, with swing points being formed each year as support and resistance.

A weaker dollar draws in speculative interest into the long side of bullion and credit markets, as well as impacting the reserve/asset ratios that most central banks have linked into U.S. Treasury note values. In the current situation of global debt outlooks, the USD is being bought and sold in line with volatile inter-bank liquidity flows rather than out of desire to be holding dollars in anticipation of economic expansion.

The global economy has moved away from looking for signs of growth and instead has moved focus to the daily rebalancing of risk, with scant regard for what may happen tomorrow. Developed markets are struggling to reverse the quantitative easing programs that were designed to feed dollar liquidity across the globe in an effort to stave off the credit crisis.

However, the impact on currency markets has been to create a scale with the USD on one side and S&P 500/EUR on the other.

The new rulebook being written in regard to fair value on risk, leverage and exposure to U.S. and euro area deficits makes for some volatile regional trading sessions that have created neutral 4-hour chart order flows and have created very mixed trend and momentum reads on most global asset classes. Selling resistance and buying support at the previous session high or low, in-line with regional market's open and close is a reliable pattern for near-term traders.

Mid- and long-term investors are being left with market outlooks that are not allowing any asset class to move too far without some incredible reversals.

If the market does not break the dollar index resistance at 79.90 it will likely be in response to global equity trade holding higher into month-end. If equities can create a move into year-end that looks sustainable, the path of least resistance for the dollar index may well be to reverse tack, and absorb some USD selling down to 77.90 support.

The net result of 2011 trade can be seen in price action charts that confirm the fundamental outlooks remain cloudy, at best. Bank early and often, and remember that cash is king when trend, momentum, sentiment and price action are disjointed.

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