Although the US Dollar Index has backed off its intraday highs (and the SP500 has recovered from its intraday lows as a result), the New Reality is that we have a buck that has stopped burning, for now…
In the chart below, Matt Hedrick and I have outlined both the immediate term TRADE and intermediate term TREND lines:
1. TRADE (dotted green line) = $76.20
2. TREND (thick red line) = $77.69
Since bottoming at its YTD low on October 21st, the US Dollar has rallied a full +2%. There is no irony, therefore, that closing highs for the SP500 and the CRB Commodities Index came on October 19th (1097) and October 21st (284), respectively. As the US Dollar has reflated, the deflation in the SP500 and CRB Index has been demonstrable.
Its critical to note that the US Dollar Index is now Walking The Line (see our Early Look note from 10/29) ahead of a major event – the FOMC decision at 215PM EST tomorrow.
We know what he should do, but we have no idea what Bernanke is going to do, and we don’t think the market does either – that’s why the Bombed Out Buck is trading right on the line that matters (its TRADE line).
What we do know:
- If Bernanke panders, the buck is going to burn again, breaking its TRADE line.
- If Bernanke signals a change in rate rhetoric, the US Dollar has room to run up to its TREND line.
That’s the best risk management setup we can give you for now.
Keith R. McCullough
Chief Executive Officer