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Dollar index driven by S&P Futures


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Dollar index driven by S&P Futures

Over the past three months the dollar index has moved over 600 ticks higher, in a converse move to those seen in global risk (equity) markets. The Daily dollar index chart (below) shows that prices have recovered the previous 6 month of decline (that mirrored a move higher in equity trade) in just 3 months.

This is a clear signal that the Usd is in a recovery mode, and in a bullish rally that looks to have plenty of potential for further gains.

TheLFB Charting: Dollar Index monthly view

The dollar index is the value of the United States dollar relative to a basket of foreign currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

As the index trades higher, the currencies listed above will decline, and vice versa.. One of the most powerful negative correlations with the dollar index is seen in the global equity futures market.

The Daily overlay chart (below) shows S&P futures (the Russell 2000 shows great correlation as well), and the dollar index, and reveals just how tight the negative correlation is, and how much the global risk markets are currently linked.

TheLFB Charting: S&P futures/Dollar Index daily overlay chart

In December 2009 the dollar index traded higher at the same time that equity markets found buyers, in reaction to global risk levels dropping hard on the strength of the December U.S. Non-farm Payroll numbers.

Global markets bought into overall risk tolerance, and for the first time in 18 months bought into U.S. economic growth.

The 6-7% December equity gains were matched by Usd buying, as interest rate increases from the FOMC were factored in to dollar valuations.

Those equity gains were wiped out in January, and the Usd found buyers on the strength of risk aversion (out of stocks and into bonds/Treasuries), which was all timed off the January NFP numbers missing their mark. Once S&P futures turned lower, after hitting the 1148 top, the dollar index gains accelerated.

From an Elliott Wave technical perspective the dollar index is likely trading in wave three, which is the most powerful leg of a five wave pattern, and importantly, this wave three does not yet look to be completed.

Another confirmation that the Usd may still have legs can be seen in S&P and Russell 2000 futures trade, which are trading in a Long wave two right now, with a Short wave three to follow.

Once wave three on the S&P futures gets get underway (the short side of the market) the dollar index will make even stronger gains and extend the wave three count that is currently in place.

The next technical question is where wave two on S&P and Russell 2000 futures will hit their top, because that will signal the further extension of dollar index buying. To get the answer on that question, join TheLFB today and you will receive the 4-h wave counts on S&P futures and dollar index, as well as getting access to thirty sets of global risk charting each day. 

Elliott Wave charts and updates on twitter.

Disclosure: no pos.