Is The US Dollar Rally Real?

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Just take a look at the dollar over the last two weeks.


It’s rallying big time… and this rally is big news.  The rally in the US Dollar is drawing tons of attention because it’s linked to so many other markets.

Most people don’t realize just how closely the markets are tied together. Commodities, stocks, and even the bond market have been moving because of the dollar.

The best example is commodities.

As the US Dollar falls in value, commodities jump in price.  The reason is simple.  Commodities priced in US Dollars become cheaper for the rest of the world.  That means your Euro or Yen go further when buying commodities… so you can pay more in US Dollars and use fewer or the same amount of foreign currency.

That’s a big part of the reason Gold and Oil prices (and a lot of other commodities for that matter) are heading higher.

The farther the US Dollar falls, the higher we’ll see commodity prices go.

The real question everyone is asking is, “How long will the trend last?”

That’s the million dollar question… and one I’m looking at closely.  Is this a classic case of a bear market rally… what basketball enthusiasts call a head fake… or could it be the end of the downtrend?

Let’s look at a slightly different chart for some perspective.


This is a chart of the US Dollar using weekly closing numbers.  I like to use the weekly chart in determining longer term trends… In this case, you can see the US Dollar has been in a steady decline for almost a year now.

If you only looked at the first chart, you wouldn’t see the bigger picture.

The recent rally looks impressive on a short term chart.  But on this weekly chart, it looks like a short term blip in a longer term downtrend.

I’ll start considering a trend change if we see the US Dollar rally through $77 and hold above the $78 level.

Once the US Dollar crosses above these key areas of resistance, we can proclaim the old trend dead and a new one beginning… but until that happens, we need to assume the longer term trend will continue.  That means remaining short the US Dollar and long commodities and foreign currencies.

Keep your eye on the US Dollar… it will give us a great indicator of where the markets are heading over the next few weeks and months. 
 

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