The US Dollar continues to be a tricky market to follow.
On Monday, the US Dollar gapped below support and the PPO trend line looked to be resistance. I like to use weekly charts for my indicators for long term direction as the daily indicators swing too much to indicate long term trend. For those that have been following the sideways trading range in the dollar, the weekly chart has been working us back and forth. But on Monday, everything looked lower. The full stochastics indicator continued to go lower after turning down the week before. The chart below shows Monday's close with the UUP.
After hitting the lowest close in five weeks on Friday with an outside bar and gapping lower on Monday, the dollar was on its way out. The resumption of the bear market in the dollar looked supportive of weak dollar trades. Gold surged on Monday with huge volume.
Fast forward to Wednesday:
What a difference in two days! Wednesday's close is shown below. Now the chart is testing the top of the range again! $0.04 points higher will be a 4-week high and $0.15 points would be three month highs. We have moved $0.34 in 2 days. Notice the change in full stochastic direction and the PPO break through the trend line.
Zooming out, we can see why this is important. This would break the 15 month trend in momentum. We also closed at the level that was the former support level of 23.63. A break to three month highs, just $0.15 higher would also break the downtrend on the price bar chart. We still need Thursday's close to wrap up the week.
In conclusion, the sudden reversal in the trend on the US Dollar is huge. A major test will happen on Thursday to end the week as the dollar deals with all the resistance above it. If it breaks out, commodities trades could move swiftly lower. The dollar may stall here again may stall, but you can see why this week is so important!
When the market reverses, I can reverse too. What was shaping up to be the continuation of the bear market in the dollar may become the week of the reversal to a trend of higher US Dollar. The implication would be Gold and Silver trades may not be able to break out soon in what looked to be a promising setup earlier in the week.
The cliffhanger ending starts now! With the reversal being confirmed in the bonds, it could be telling us the Dollar is reversing too!
I will have a lot more on the Thursday edition of Commodities Countdown Video. As well I will be co-hosting the MarketWatchers Live show all next week with Erin Heim. We'll kick that show off with Chip Anderson joining us on the air for some major announcements. It's a don't miss week for video at StockCharts.com. This is more exciting than the final few games for the hockey season!
Greg Schnell, CMT, MFTA.