Tuesday, July 12, 2011

What is the dollar telling us?

A strong dollar does not bode well for the equity market. Considering this, signs do not look good for the market. Below is a daily chart of the dollar.

An ascending triangle has formed in the last few months and it looks like it will finally be broken today. Expect resistance at the MA(200). This is where the index got rejected in November and January and how the dollar deals with it, will provide a good estimate of the strength in the current move, and consequently, of the weakness in equity markets.

Let's step back a bit. The following is the weekly chart of the dollar.

The dollar is also going to come up against a multi year trendline in the near future. For swing traders, I would recommend keeping a close watch on this trendline and how the dollar deals with it as it could be crucial for the markets in general. Exciting times ahead!

Take care and good luck!

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