But with commodities actually retrenching a bit from their highs, this looks like crossover action related to the S&P 500′s test of resistance at the 1,287-point level today. This is a very important test and the very fact that demand for dollars is weaker tells us quite a bit about how it may turn out.

And the other side of the coin is that if commodities have decoupled from their once-slavish reverse correlation to the DXY, then fundamental supply and demand are a factor again. When that happens, as we say at EmergingMoney.com, “You don’t buy commodities when they are cheap. You buy them when they are expensive.”

The trend is your friend.

Bangladeshi investors took to the streets and were only dispersed by tear gas.

Meanwhile, in Indonesia, stocks fell 4.2% and in the Philippines, the market slid 2.2%. The associated ETFs IDX and EPHE are plunging in early U.S. trading as well.

Many of last year’s outperformers are having a rough start. Part of it is inflation and policy concerns, but it is mainly the feeling that these markets are overvalued given the prospect that rising interest rates will now start choking off growth.

India, which was hitting record peaks as recently as November, is now down 8.2% year to date.

It is true that the world is hungry for steel, but the critical thing is that there are a lot of steel mills out there competing for iron and coal — and customers. This drives up demand for input materials but depresses the price they can charge on the other end, and that is just not a recipe for a healthy business.

As supply problems emerge, the situation gets even worse. The floods in Australia have knocked out around 19 million tons of steel production capacity, simply because the mills can’t get the coal they need. Everyone who wants to make a ton of steel has to pay a lot more to do so, but as yet those costs have still not translated into higher prices for steel consumers.

Add in the prospect that a fresh round of euro madness will spark yet another global growth scare and you have a situation that encourages shorting.

Look at the run that X and NUE have had. Look at the way the mothership MT  is leading the sector downward.

X is down a quiet 7.5% in the last two days and NUE looks vulnerable.

While some say strong flows become a negative technical indicator if they continue “too long,” the fact is that they do not seem to have gone on too long yet. In fact, the idea that too much money crowding into an asset class is only bearish confirmation if sentiment is bearish already — otherwise, it simply indicates that investors are still piling into these funds, which we would ordinarily call a “bull market.”

Where is the money going? Old faithfuls: Brazil and China, both of which have been a bit bruised or even battered in the recent correction.

Latin funds are hotter than they have been since October, outpacing Asia-dedicated funds last week by a significant margin and drawing in more than twice as many dollars as even the hot Russia driven CEE/EMEA group.

But the king is still the “emerging markets” asset class itself. Global funds like EEM took in half of all emerging markets flows last week — a total of $1.7 billion in net allocations.

It was an unexpectedly cooperative note to strike when traders were expecting Brazil’s newly minted top government banker — an appointment of incoming president Dilma Rousseff — to unleash some thunder and maybe even a little lightning on the currency markets.

However, while Tombini seems to be playing the “velvet glove” as Brasilia struggles to get the high-flying real back down to a comfort level, finance minister Guido Mantega was tightening the iron fist.

Mantega has emerged as the hawk in Dilma’s administration, having vowed previously that the government could tap unlimited resources to keep the real from getting any stronger.

Today, he announced that financial institutions who want to go more than $3 billion short on the dollar will need to keep 60% of the value of their positions in reserve — a move designed to discourage what has become a big business of betting against the greenback in Brazil.

As of now, Brazilian banks are a net $16.7 billion short on the dollar. By April 4, when the new rule goes into effect, local analysts expect about 40% of that net short position to unwind. As it happens, that would only free up enough cash to cover the new reserve requirement, so it remains to be seen how effective the move will be.

Obviously, a policy like this aims to strengthen the dollar’s relative appeal for Brazilian institutions and so help sap a bit of demand out of the otherwise too-strong real, and by extension, funds like BRF

In practice, it also resolves questions about whether banks that have been playing too hard in the currency markets are risking another implosion.

DXY is a crowded trade right now, rising on general sentiment but it looks like there are only a few more days — at most — here before the recent thrust takes the dollar index up into some pretty heavy overhead resistance.

It does look like DXY will ultimately respect the 20-day moving average, which is currently trending at around 80. If anything, right now the DXY’s current level of 80.40 looks a little overbought beyond the short term.

But in that short term, a reasonable top to look for would be 80.75. It is fairly unlikely that we will see it hop up beyond 81.70 — where the hard 200-day resistance is — in any event.

We might get real job creation tomorrow to keep the sentiment running high, but unless the big boys truly are unwinding USD/CHF or USD/JPY trades, the dollar may not get much stronger from here. This, in turn, would make it safe to take another look at your commodity and emerging currency trades.