October 13: Quick Dollar Update

Time has not been easy to come by in the last few days, so again we are behind in reporting on some things.  The dollar has, since our last report, been trying to find and hold support at 76 (actually, 75.83...).  Today, it closed below that level.

It is not uncommon for the dollar to have a false breakdown, recover, and then close lower some time later.  We should know within the next couple of days if this is going to occur.

Oscillators are showing it on the verge of oversold again, but it does not appear capable of mustering much of a rally.  We would not consider the oscillators the last word on dollar support.  In the end, what matters is price action.  Either we will see a recovery and short rally again here, like we did when the dollar first broke down below 78, or we will see a strong move down.  If and when things crash, they do not crash from overbought levels--they crash from oversold levels.

As of this writing, the dollar is trading around 75.59.  If the dollar were to end the week below 75.50, we would be of the strong opinion that this support level has fallen and 72 is in play.  With the indicators being so oversold at that point, the likelihood of some support at 74 increases, but so does the probability of a more significant crash.  In short, we're probably going to see some fireworks soon if we don't get some buying at these levels, at least to run the dollar back up to overbought one more time around this support level.  If some support occurs, watch for a ceiling at 77.50.


We are again seeing some signs of bearish divergence within stocks (though gold and commodity stocks are doing well).  A weak dollar potentially breaking through support would typically be very bullish for stocks.  Ignoring the hype around J&J today, what we see is a weak dollar and weak general equities.  Commodities continue to be strong with crude oil appearing to ready another assault on resistance at 75.  Gold--well, what needs to be said there?  Natural gas remains bullish.  The Continuous Commodity Index continues to move strongly upward, right in alignment with the ascending right triangle we discussed on September 30.  Copper, though overbought again, is moving nicely through the channel we discussed.

What we clearly have is a major anti-dollar trade.  The only bullish news on the dollar is that there are so many bears that there is likely to be an unexpected rally at some point.  Watch that 76 level closely.  We are in dangerous territory here.