The dollar index has struggled for weeks with support of two years past.
You can see this clearly on the chart of
PowerShares DB U.S. Dollar Index ETF
, which tracks the movement of the dollar index. Here's a longer-term view.
(The dollar was rising Friday, prompting a huge selloff in stocks and commodities. The U.S. dollar index, which tracks the dollar against a basket of major currencies, was up 0.5% on Friday afternoon at 76.273.)
Notice how volume is expanding tremendously as prices break though that very long-term downtrend? That is and will continue to be a problem for the equity indexes, especially the commodities.
Here's is a short-term view. Notice the AB=CD pattern that has set up.
The quick and dirty view on the dollar is that it is heading higher -- not lower. The short dollar trade is a very crowded trade, and it is a very lopsided trade currently (last statistics I saw showed over 90% of the traders were set up short).
With the upcoming
meeting, the fear that the dollar could turn and spurt higher is starting to be realized. When momentum starts, it's a hard thing to stop and with so many trades that will need to be unwound, it could be a very fast ride higher.
You see, if the dollar starts to gain strength, equities will lose, and as equities lose, they reinforce the dollar strength since the dollar is still viewed as safe when compared to most currencies.
So, until next time, keep trading the charts!
At the time of publication, Little was long ProShares Double USD Index ETF. L.A. Little is an author, professional trader and money manager who writes daily on
, a free educational site for traders and investors. He has been featured in Stocks & Commodities magazine and is the author of