USD looking down the rabbit hole!

Last update on the USD saw a breakout out of the downtrend, and a struggle up towards $81, before trending down for a back-test of the uptrendline. Looking for a consolidation between the two trendlines. A sustained break below the lower trendline is long-term bearish for the USD, and thus bullish for commodities and stocks. Watch this chart!

$USD breaks out of downtrend

The US Dollar index has broken above its downtrendline, but is being pegged down just under resistance at $80, as suggested previously. A break above this level would be bullish with a target of $84. At the same time, it seems to suggest continued weakness in commodities and equities, in the near future.

Correlations: $USD vs Commodities, $USD vs Equities

In response to one of my posts on the USD, a fellow investor at this forum rightly pointed out that the inverse correlation between USD and Commodities is stronger than between USD and Equities. Charts of USD vs the CRB & DJ World Indices are shown above. Even then, most USD turning points also turned out to be turning points for equities in the past 3 years. Hence, my view that it is a good idea for an Equity trader to keep an eye on the USD direction as well.

$USD Rockets higher

Last post, "USD Rebound around the corner", suggested that the drop below $76 could be a false break. An initial rebound target of $78 was set. Yesterday, USD took off, breaking above this level, and more critically threatening to break out of the downtrendline. Equities have dipped in response. Resistance from the downtrendline and the $80 level, could see a back-test here. However, a confirmed break above $80, could keep Equities depressed for a while longer.

$USD Rebound around the corner

Since the last post on the USD, there was a rebound to the $78 level, before another breakdown, which broke the lower critical support line. However, given the positive RSI divergence, this could be a false breakdown as the subsequent sharp rally seems to suggest. A rebound is possible towards $78 level initially, implying a pause in the current rally in world markets. On the other hand, a failure to break back up above the line will point towards a much lower USD & higher stock prices in the medium-term.

USD hits Support.

The above is a weekly chart of the US Dollar Index. Markets are at an interesting juncture with emerging markets leading with minor breakouts to the upside. $USD at oversold & has reached trendline support here. A successful rebound may have bearish implications for global equities in the short-term, and conversely a break below would be medium-term bullish for equities.

Initial resistance on rebound is 80, while initial support is 74.

(Video) Prechter on CNBC's Closing Bell

With the dollar up nearly 20% since December 2009, Robert Prechter put that number into context and offered his forecast for the U.S. currency on CNBC's Closing Bell. Watch the video excerpt below from his June 10 interview with host Maria Bartiromo to hear what he had to say about the dollar, the euro and the looming bear market.



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