US Dollar Index … Expect Volatility

Commodities, priced in US Dollars, have been rising over recent days. 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 has been in consolidation mode since Mar15, slightly over one year. The chart below reflects US Dollar Index futures in weekly increments dating back to 2006.

US Dollar Index Chart1, 17Mar16

The trading range formed over the last year is important. The boundaries set by that range, 92.41 to 100.60, when penetrated, will help define the direction of the next US Dollar Index move. Breakout above 100.60 suggests a target of 118.00. Breakout below 92.41 suggests a test of 89.71.  Failure of 89.71 means much lower.

Regardless of which direction the breakout occurs, expect strong volatility … price movements should be sharp. In addition, look for commodities to react in the opposite direction. A US Dollar Index breakout to the upside should pressure commodity prices. Conversely, a US Dollar breakout to the downside should move commodities higher.

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/.

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