Tuesday, August 12, 2008

Dollar rally - how far?

Will a dollar rally become the new hype machine for the market shrills? Certainly the dollar has been hurt over the past 6 years. But with gold double topping and other commodities weakening there is a good case for a lengthy rally in the greenback.

The recent complex (quad-)bottom in the dollar also coincided with a bear trap, while the push above 74 broke the 6-year declining trendline. This aggregation of positives should be enough for a challenge on 80.72 resistance with a long term (5-year) objective of 92.17.

Any strength in the dollar will be bullish for equities. The more broader indices push higher the stronger any buying will be when they slip into retests of prior lows. If during such retests the dollar continues its advance (with oil and gold likely weakening even more) then bears will find their directional positioning increasingly tenuous.

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website