Alex Trias

USD Weekly Outlook: Sovereign Debt Threat, Thin Liquidity, Stalling Stocks Boost the Buck

The DXY is poised right about dead on its 200 day exponential moving average. This is an area that frequently acts as support/ resistance to long-term trends in dollar pricing. I suspect this time will be no different. If the dollar can slice through resistance at these levels, perhaps observe the 200 day exponential moving average as resistance, we could really be onto something. Unless and until that happens, we may simply be watching some year end unwinding of carry trades.

I'm not sure that a rising dollar necessarily indicates risk aversion. Equities (US equities, at least) have managed to hold it together somewhat, despite a huge dollar rally. Also, we are seeing yields on ten year treasuries spike up - which really doesn't indicate much in terms of risk aversion. The TED spread remains in a normal range, and the VIX is still relatively low. If anything, complacency and risk appetite seem to be on the dance card these days. If the dollar continues to rise, and if other risk indicators continue to be bullish on risk, we might want to examine whether the dollar strength has some economic component to it, as opposed to simply risk aversion on the part of investors.

Which is a big "if". Again, the dollar remains in a long term bearish trend, and until proven otherwise, I will assume the dollar will continue to grind lower as trade and budget deficits mount, and interest rates in the US continue to remain lower than other developed nations.

Wide Fund Survey: Prices vs. Primary Trend

The primary trend can give some false positives - meaning, it is not unusual for a bear market rally to go as high, or indeed higher, than a 200 day simple or exponential moving average. A more useful tool, I believe, is seeing whether a 50 day moving average can cross above a 200 day moving average on heavy volume. We're seeing a convergence on some index ETFs - notably FXI and EEM.
More interestingly, we've seen the 50 day cross below the 200 day on a number of short ETFs - I just ran these averages on Yahoo finance and found this formation on SH, DOG, RWM, EFZ. If the short etfs are heading into bear markets, it strengthens the case that primary uptrends may form up on the corresponding long indexes (although you wouldn't expect that 100% of the time given the performance lag you typically see with short ETFs).