The U.S. Dollar Index has perked up, generating the first impulse leg of daily-chart degree in more than four months. The rally would look even more impressive if it exceeds Monday’s 90.99 high by just two ticks, surpassing an additional peak on the daily chart that was recorded back in mid-January. It’s too early to get excited, however, since the uptrend has barely created a blip on the long-term charts. That’s the chart I’ve displayed for today in order to keep things in perspective. If you’re looking for the move that would break the back of the bear market begun in January 2017 from 103.82, set the bar at 97.87, where a small but technically important ‘external’ peak was made ten months ago on the way down. Regardless, we can put our doubts aside as long as we remain focused on the hourly chart. At that level, DXY’s upward spasm looks mildly impulsive and even encouraging.
If the dollar is in fact embarking on a major rally, everything is about to change — and I mean everything. A strong dollar would surely flatten exports, raising trade-war paranoia to a shrill crescendo. But the main effect would be deflationary in that it would tighten the noose around the throats of all who owe dollars. Could the stock market move higher in such an environment? Stranger things have happened, but it seems most improbable.________ UPDATE (May 1, 10:15 p.m. EDT): The Dollar Index is just shy of breaking out above an important ‘external’ peak at 92.64. A rally exceeding this peak, which was recorded in January ahead of a steep decline, would create a robust new impulse leg of daily-chart degree. It would also shorten the odds that any weakness in the dollar thereafter would be bullishly corrective rather than a resumption of the long decline begun early in 2017. _______ UPDATE (May 2, 6:15 p.m.): Buyers pushed past 92.64, hitting an intraday high of 92.83 before settling at 92.79, just above our benchmark. It’s still possible the rally will exceed additional ‘external’ peaks before it takes a breather. The next lies at 93.56.