Two weeks ago I noticed the indicators on the US dollar were leaning towards a much over-due (over 2 years) rally. If you didn’t read my article, Has The Dollar Hit Bottom? Possible Rally In The US Dollar, this is a great before and after shot of using technical indicators to predict the direction of a market.

Please notice I said “direction of a market,” and not “how much it will move.” Predicting the degree of movement can not be done with indicators, but must be done using price patterns and volume. That said…

The US Dollar Is In A Confirmed Rally

There, I said it! Take a look at the weekly and daily charts.

First, the weekly. Price has broken out of what now is confirmed in my opinion to be a bottom triangle.

Second, price broke through the 52 week moving average for the first time April 2006, the beginning of this incredible bear run in the dollar.

Final confirmation comes from the indicators. The Aroon shows a bullish cross at the 15 level, which is a very reliable indication of a trend reversal, with the williams %r crossing the 50 line and the PPO fast line crossing the signal line and the slow line not far behind.

Here’s the weekly chart:

What Does This Mean For Stocks?

I hardly remember economics 101, but there are a few things that a strong dollar guarantees:

1. Commodity prices including oil and gold will continue to decline
2. US products will become more expensive and foreign products will become cheaper domestically. This will have a negative impact on the trade deficit

Also interestingly enough, while the USD has tanked the past 2 1/2 years, stocks were rallying. So the question is, does this mean a strong dollar will be bad for the stock market?

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