One of the primary factors driving the dollar to recent lows has been the uncertainty and risk associated with a protracted conflict in Iraq. Nobody knew how many would die, how much the war would cost or how much of Iraq's revenue-producing oil infrastructure would escape destruction.

Rapid progress into Baghdad over the weekend has dispelled media claims that the war effort hasn't proceeded fast enough. With Baghdad International Airport under U.S. control and coalition forces able to move within the city at will, the uncertainties and risks are fading, and the end of the war appears to be on the horizon.

"Operation Iraqi Freedom" has been extraordinarily fast and successful militarily. The war, military occupation and explicit message are harsh. But they also will most probably make the world a less uncertain and less risky place. Less uncertainty and less risk are both positives for the global economy and for the dollar.

June

dollar index futures

(DXM3:NYBOT) recently gave us a taste for their capacity to rally euphorically on the prospect of a shorter war and on the extension of America's sphere of influence into Iraq. That's what the March 11 through March 21 surge in the dollar (A-B on the dollar chart) was all about. If the remaining oil production and distribution infrastructures remain intact, Iraq -- and not the U.S. -- will immediately have the currency to pay for reconstruction. Any contribution by the U.N. or Europe will also ease the reconstruction burden on the U.S. taxpayer and, hence, on the dollar.

Islands Over Babylon

Technically, there are two island reversal lows or pockets of price bars that are separated by gaps. The second two-bar island held at the critical 78.6% retracement, the level that frequently holds in successful tests. The price action at that level was also positive. The dollar index logged an outside bar. You've also got a gap, lap and two expansion bars that occurred in the upside overbalance noted by A-B. This means four of the five price bars that are required to indicate a substantive trend change and possible explosive upside move are in place.

Dollar index futures don't yet have a confirmed green light, but aggressive traders will note that these are strong indications of a bottom.

June

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live cattle

(LCM3:CME) broke out of a Cooper Rule of Four pattern on April 2. After hitting a two-month high on Friday, they lapped higher and are now providing evidence that this market wants to run to a new contract best.

The outside bar down on March 25 in May

sugar

(SBK3:NYBOT) is working to define this market as a short-side play. Look how that bar refuted the March 14 lap-filling bar and closed the March 21 lap higher. This market has also failed to trade convincingly above its 10-day moving average for more than one day since the Feb. 20 peak, and that is a clear indication of downside momentum.

Notice how price once again retraced to the 78.6% "test" level of the downswing denoted in the chart by A-B. This has been a complicated pull-up-from-the-low consolidation, but sugar appears to finally have triggered Monday.

Marc Dupee is an independent trader and co-author of the book

The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to

Marc Dupee.

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