6/1/12 – Daily U.S. Dollar Index
Click to enlarge
I never like calling tops or bottoms in markets but I’m going to go out on a limb and say the dollar is making a top as you are reading this post. A doji star on the candlestick chart above followed by a failed attempt to make it to higher ground is evidence to me that prices are having trouble holding at these levels. The fact that the market is overbought as seen on the stochastic also helps my argument. After a 5.5% appreciation in the last month virtually straight up some back and fill makes sense. I get the flight to quality but the world is not coming to an end and perhaps we’ve priced in too much dire news.
If we start to see prices retrace you would think we get a bounce on all other crosses going into next week. The fact that we have several central bank meetings next week also could be a catalyst for a trend change. Next week the RBA, RBC, ECB and BoE meet on IRs.
For those not interested in trading FX use this chart as a guide as most commodities exhibit an inverse relationship to the greenback so on a deprecating buck expect commodities to catch a bid.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.