NYBOT Dollar Index

With a thrust this week exceeding 78.70, DXY has the potential to create a robustly bullish impulse leg of daily-chart degree.  Assuming the rally eventually gets past that number, even though it wouldn't necessarily be a paradigm-changer, it would generate a bullish event that we could ill afford to ignore, much less disdain.

The somewhat muddy midpoint support at 77.120 shown in the chart will make a suitable minimum downside target for now, but if it's breached decisively, look for the slippage to continue down to at least 76.500, its 'D' sibling.  Any breach of the midpoint by more than just a few ticks would be further evidence that the rally begun 11 days ago is likely to go nowhere.

Short-sqeeze conditions are likely to obtain today, since DaBoyz were able to engineer a deep swoon that by day's end left DXY trading close to the spike high fabricated the night before. Shorts will be nervous as a result, and we should look for them to propel the dollar higher: most immediately to a minor Hidden Pivot at 77.65, but to another at 77.85 if any higher.  A print at the latter number would be impulsive on the 30-minute chart, and therefore presumably sufficient to keep the rally going for at least another day.

Once again, we see that it pays not to get too excited about some stupid rally in the dollar, especially when the supposed cause of the rally-- a rise in the yuan lending rate?? -- flouts common sense.  With DXY's relapse yesterday, this vehicle all but wiped out any chance it had of demonstrating that technical forces are about to turn the doillar sharply higher.  As I had noted here earlier, the rally needed to surpass two prior peaks on the daily chart without taking a breather.  It did manage to get past one of them on Tuesday, but the would-be sprint toward the second that was to have occurred yesterday was exhausted before DXY had even left the starting gate. What on earth would cause anyone to think the dollar is going to rally merely because a rally seems "overdue"?  Even as I write these words, a story on the evening news is describing the deep spending cuts Great Britain is enacting to bring expenditures more realistically in line with tax revenues in these hard times.  Similar measures are certain to be voted across Europe -- and yet, with the U.S. pondering QEII and yet another Keynesian blowout, are we to expect the dollar to somehow gain ground against the euro and other currencies managed by a growing number of nations that have begun to question the value (in every sense of the word) of ginned-up money.  From a purely technical standpoint, the Dollar Index still has a chance to take on peak #2 without having paused, since yesterday's plunge did not quite create a discrete, point 'C'  low on the daily chart (see inset). Such an outcome seems doubtful, however, notwithstanding the violence of the gratuitous moves both up and down that could conceivably play out for yet another day or two.  Barring an outbreak of dollar delirium, I'll hold

For reasons noted here earlier, a push today exceeding 78.69 would create a bullish impulse leg of daily-chart degree, clinching a week or two (or perhaps more) of vexatious feistiness that could test bears' mettle. The last time this happened was back in December, and the rally that ensued lasted for six months, adding nearly 20% to the dollar's ostensible value.

The Dollar Index didn't get past either of the two important peaks flagged here yesterday, and, to make matters worse, DXY couldn't even muster the two additional ticks it would have taken to surpass the 77.65 look-to-the-left peak identified in the chart (see inset).  While it's still too early to write off this two-day-old rally, signs that the long-term downtrend will soon resume are too obvious to ignore.

After feinting lower on the opening Friday, DXY trampolined powerfully, getting a running start at the first of two resistance peaks it will need to surpass to kick off a decent technical rally.  The accompanying chart shows the peaks in the perspective of the daily chart, and the rally past them would need to be unpaused once the Dollar Index crosses the "starting line" represented by the lower of the two.  However, if the rally dies somewhere between the peaks, then pulls back for a successful surge past the second, that would diminish the implied strength and probable longevity of the bull cycle (assuming it goes far enough to qualify as such). It does not bode well for bulls that the most recent ABCD downtrend achieved the 76.15 target I'd flagged with a tick to spare.  That's because strong bull trends, even incipient ones, typically produce pullback abc's that go no further than their c-d midpoints.

Prospects for the dollar have become an obsessive concern in the chat room -- and rightly so, since even a hint of strength is going to bring gold and silver prices down hard. For that reason, I will be tracking DXY's oscillations very closely in the days and weeks ahead.  So far, however, as the dollar has continued to fall, I've seen nary a flicker of life.  Promising impulse legs have fizzled like soggy firecrackers, and downtrending ABCs have consistently exceeded their 'D' targets.  To me, this spells a continuation of the dominant trend. Nor am I persuaded by the arguments of some well-regarded chartists who have been calling for a turn. Their bullishness seems to be based on little more than the fact that the dollar has been sold down so hard, and for so long, that, well, it is simply due for a rally.  My response is that it is equally plausible the dollar has finally slipped into the vortex that will take it through all previous supports to scary new lows.  We shall see, but in the meantime let's keep an open mind. Most immediately, we'll set a benchmark for today at 77.41.  A rally touching that price will have exceeded two external peaks on the 30-minute chart, one of them a look-to-the-lefter "along the wall" of a steeply declining price bar. A minor pattern (also shown) is already in progress, but it projects no higher than 76.98 if the 76.65 point 'C' remains intact. ______ UPDATE (12:45 p.m. EDT):  No surprises.  DXY has topped so far today at...76.97.  Click here  to access Auerbach and Grayson's latest report, which for purely technical reasons is as bearish on the dollar as I am.

Yesterday's rally was promisingly impulsive, having exceeded no fewer than three prior peaks on the hourly chart.  However, no sooner had buyers achieved this feat than they turned tail and headed back toward recent lows near 77.00.  This has painted "dueling" impulse legs on the intraday charts, but the bias is still short-term bullish because the pullback was not quite as powerful as the upthrust. Now, if the bulls are going to take command, they should be able to push DXY above 78.14 by week's end.  The significance of this number -- it describes a look-to-the-left-peak -- is shown in the accompanying chart.