NYBOT Dollar Index

The rally pattern shown in the chart stalled Friday within two ticks of a 75.74 midpoint resistance, but as of late Sunday night, oh-so-eager buyers have left it in the dust.  This strongly implies more upside over the near term to the 76.51 target shown in the chart.  However, in order to demonstrate real power, as opposed to the phony short-squeeze kind that has launched the greenback from its early-May lows, today's effort would need to exceed the peak at 76.61 recorded on April 1.

Price action looks opportunistically bullish-- meaning there is no particular buying interest at the moment, only the menacing silence of predators waiting for that piece of news that will allow them to short-squeeze the dollar to the next level.  The upthrust would need to clear the 76.43 peak recorded on March 28 to have any significance for us, since that would refresh the impulsive bullishness of the daily chart.  However, even then the running start that will have been required to vault this structural resistance would necessarily diminish whatever power we might impute to the move. Keep in mind that there is nothing "fundamental" to rally the dollar right now, only technical forces that have had months to build up torque.  How much of it was spent by the carry-trade unwind of the last two weeks?  Time will tell, but herky-jerky action will be our clue that there are still some nervous dollar-shorts out there.  If you want to keep close tabs on the greenback but don't subscribe, click here for a free trial subscription to Rick's Picks. We are monitoring the dollar very closely ourselves because it has long been a given that its collapse will, finally, take the global financial system down with it.

A modest leap has surpassed April 18's peak at 75.81, but notice how the rally fizzled before buyers could take on a slightly higher high at 76.15 recorded two weeks earlier.  This is the kind of chicken-hearted action that I have described in today's commentary, and it suggests that the current rally is not destined to become a hall-of-famer.  Even so, we'll keep an open mind, since an unpaused pop exceeding the April 1 high at 76.61 would indicate the rally is picking up steam, not fading.

The rally continues to impress the pivot-trained eye with its feebleness, but that doesn't rule out the possibility that DXY is primed to leap opportunistically with each new morsel of bearish financial news that comes dribbling out of Europe or Standard & Poors. In any event, I'm going to slightly revise my numbers, stipulating now that the leap surpass 76.61 (vs. 76.43 given here earlier) to signal a bullish event with a valid claim on our attention. _______ UPDATE (1:06 p.m. EDT):  Today's strong thrust projects to at least 75.62, but if DXY settles above that number we should expect a renewed burst to a minimum 76.75 (!).

I've identified some bullish benchmarks in today's commentary, but let me do it here as well so that the precise numbers get archived along with previous DXY touts.  Although the rally thus far is impulsively bullish on the hourly chart, we should require an unpaused thrust exceeding the two peaks noted on the daily chart. (See inset.) They lie, respectively, at 75.81 and 76.43, and once the lower has been surpassed, the rally's strength and longevity will presumably be foretold by how easily the higher gives way.

Last week's rally was impulsive on the hourly chart, albeit with some hesitancy, but we should set a higher standard for turning bullish ourselves, since the dollar has done nothing to earn our -- or anyone else's -- trust.  Dollar bulls are obviously about to get some mileage from the cyclical bashing of Europe that has begun anew, like the swallows' predictable return to Capistrano. But because there's always the chance that Spain's financial house of cards is going to come tumbling down one of these times, we should be alert to the dollar short-squeeze that this would catalyze.  In any event, use the two 'external' peaks shown on the chart to judge the rally's strength.  If a bull market is a-borning here, then we should see an upthrust surpass both of those peaks without an intervening b-c correction.

I've displayed the Dollar Index's dead-cat bounce on the weekly chart so that you can see it in proper perspective.  Is it conceivably the start of something big?  It's too early to tell, although I'll note that the surge failed by a whisker to push above a taunting external peak at 74.33 on the hourly chart. Look for that to happen today, but a little more will be needed -- specifically, a push above another 'external' peak at 74.48 -- to demonstrate the kind of pluck we associate with big beginnings.

DXY couldn't muster the feeble rally to 73.39 that would have turned the lesser charts bullish yesterday, so let's focus today on the 72.26 downside target of the pattern shown. It looks like a lock-up to me, so if you trade currencies, I'd suggest shorting there or at least exiting longs ahead of the dollar's expected bounce. ______ UPDATE (May 3, 8:36 p.m.): Three days spent screwing the pooch has turned the short-term outlook for DXY into a coin toss. Continue to monitor the 73.39 benchmark, since its breach will at least postpone the predicted fall to 72.26, and thence to 68.36.

The dollar looks so hopeless at the moment that we should double-check our instincts and expectations at every opportunity. That would imply setting a screen alert at 73.39 today, since that's where an upthrust would turn the hourly chart impulsively bullish.  As of Sunday evening, a modest rally has already surpassed an internal peak with a mini short-squeeze to 73.16, so it wouldn't take much more to effect the bullish signal.