So how is the US dollar rally going? The dollar has just tested some support on the 15 minute chart for UUP at 21.55, but has slipped to 21.54. It now meets up with resistance at the 50 day moving average as well which is at 21.59. I give the UUP numbers, because it’s easier for most to follow than the US dollar index. As long as the 21.55 number holds on a close today, the US dollar probably will have more of a run up. Remember that it has been pushed down relentlessly for months, so a bounce was becoming probable.
The trouble for stocks (SP500 Index and gold (GLD)) is that they are measured in value relative to US dollars. That correlation has been going on for long periods of the time since the financial crisis began. There was a period between 12-2009 and the 4-2010 high in the stock market where stocks and the dollar were directly correlated (both went up and down together with some turbulence in between). But they have been inversely correlated from 8-2010 to the present time.
The US dollar will tell you when it’s time to buy stocks and metals again. If the UUP moves sharply above 21.59, stocks and metals will likely correct further. If it moves sharply below 21.55, stocks and metals will rally. Remember that no rise or decline is straight up or down. Use stop loss points to protect your capital in case you are wrong.
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© 2011 David B. Durand, M.D. All rights reserved.