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The Dollar Tells Us A Big Market Rally Is Coming

The Dollar moved dramatically higher again today, extending the already massive gains over the last month. This run in the Dollar has been one for the ages. In the near term, it has decoupled from the inverse relationship with the U.S. markets. Usually, if the Dollar goes up, the markets drop. Recently, the action has shown us that when the Dollar moves higher, the markets are flat to positive, and when the Dollar moves lower, the markets rally strongly. In other words, heads the market wins, tails the market wins again.

This is significant when looking at the Dollar chart. For instance, let's look at the PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP). Today, it is trading at $22.60, +0.10 (0.44%). The significance of this move today is two fold. First, the daily chart filled a massive gap to the upside. Gap fills to the upside usually result in pull backs. If the Dollar pulls back, the markets should head higher. Next, take a look at the weekly chart of the Dollar. Shown on the chart below. The weekly has hit the 200 moving average. This is a major resistance. Should the Dollar pull back off this level, the markets should head higher.

Both time frames are dictating a pull back on the Dollar in the near term. This tells us traders to expect a strong move up coming in the markets.

Gareth Soloway