We seldom comment on the US Dollar Index (symbol: DX), however we do track the index closely to understand the potential influence on US Dollar denominated commodity prices. The US Dollar Index is approaching a crossroad in the $89.71 to $92.41 range. These levels represent strong resistance to the upward movement in prices dating back to May11.
The US Dollar Index has reached an overbought condition based on the stochastic and RSI indicators. The rally during the second half of 2014 occurred on strong volume. A drop in volume on continued strong index values would be another sign of impending price reversal.
Why is this a critical juncture in the US Dollar Index price structure? If the resistance in the $89.71-$92.41 range holds, this will likely complete a correction from the $71.05 low achieved in Apr08, AND a resumption in lower price action to levels below $71.05. The impact on internationally traded, US Dollar denominated commodity prices would likely be extreme.
Murphy & Co’s position model focuses on commodity and equity futures markets, and does not currently recommend positions in currency markets. To learn more about Murphy & Co’s position models, visit http://murphycofutures.com/position-models/