NYBOT Dollar Index

Much as we hate to kick the dollar when it's struggling, we'll set the bar all the way up at 78.07 -- a tick above a look-to-the-left peak made last Wednesday on the way down -- before we certify any rally as the real McCoy.  Assuming DXY fails miserably to meet our criterion, expect the weakness to continue most immediately down to 76.75, a Hidden Pivot tha comes from the hourly chart.

A Hidden Pivot support at 77.22 does not look like too much of a stretch, based on the coordinates I've used on the daily chart (see inset). My choice for point 'A' is arguable, but among the three available peaks, applying every rule I could think of,  it seemed the most logical.  In any event, a failure to bounce from somewhere near the target would be bad news for the dollar's few surviving fans. _______ UPDATE (October 7, 8:38 a.m. EDT): DXY trounced the support, as well as an alternative target at 77.11, presumably clearing the way for December Gold's move up to at least 1381.25. We'll continue to monitor DXY's vital signs nonetheless and suggest lowering the trigger price to 77.58 to signal a possible bullish turn in the dollar.  It would become manifest and decisive with a print today at  77.93.

Just a little farther to go before the Dollar Index encounters presumably temporary support at 78.32, a Hidden Pivot that comes off the hourly chart (A=81.50 on September 20). The number looks tradable, although you'll need to interpolate it so that it works for the trading vehicle of your choice.

Anyone looking for support near 80 got a nasty dose of reality last week when the number evinced almost no discernible support. This is notwithstanding the fact that DXY had touched 80 four times previously this year. Now, the Dollar Index will have a chance to turn around from just below, at a 79.08 Hidden Pivot. But if support there fails, we'd be looking at 77.34 as the likely next stop. Both of these targets are easily found on the daily chart, where A=84.56 (7/13) or 86.30 (6/29).

I've proffered targets w-a-a-ay below, but we'd need to go with the bullish flow for perhaps a short while if the Dollar Index pops today above 80.46, a look-to-the-left peak etched into the hourly chart Tuesday on  the way down. That would create an impulse leg surpassing no fewer than three prior peaks, but we shouldn't be too impressed, since it will have taken a day's worth of pumping to muster the charge.

The weekly chart shows multiple bottoms near 80 earlier this year, but the monthly chart reproduced alongside evinces no support whatsoever at that level. In fact, the Dollar Index would need to fall all the way down to 74.17 to pick up the support of a structural low, and even trendline support is nonexistent down to 75.81.

For all of Japan's aggressiveness in trying to push the yen lower, the dollar has not exactly sprung to life.  I continue to expect it to make significantly lower lows, but we should remain open to a turn nonetheless, even if it's difficult to imagine what might bring it about.  For now, it would take a print at 82.30 by day's end to convince me that such a turn had occurred, and anything less should be regarded as mere noise.

By exceeding all of our downside targets yesterday save one, the Dollar Index signaled more weakness in the coming weeks to as low as 79.08. Although the implied drop is unlikely to follow a straight line, it's hard to imagine just who would be stepping in to support the dollar on the way down.  The Chinese have become net sellers of U.S. Treasury paper, so it won't be them.  But neither will it be the dealers and hedge funds who have been sucking up Notes, Bills and Bonds, since they are already in dollars. As for Japan, its financiers are already up to their eyeballs trying to hold the yen down.  Under the circumstances, we may want to look beyond the Hidden Pivot target at 79.08 and use the trendline shown in the accompanying chart. It implies a further drop to around 76, which could turn China, Europe and the rest of the world even more hostile toward the buck.

'Dueling impulse legs' characterize the daily chart at the moment, albeit with a slightly bearish bias. The clear implication is that the down-leg begun on Friday from 82.99 is likely to reach a minimum 81.53 before reversing. A tradable bounce seems very likely from that price because the pattern is so clear, and so I've recommended bottom-fishing --with as tight a stop-loss as you'd care to apply.  Please note that if the support should be breached more than slightly -- i.e., by 0.06 points or more -- it would suggest that a larger downtrend with potential to 81.32, or even 79.08, is in play. ______ UPDATE (10:42 a.m. EDT):  After taking a whoopee-cushion rally off 81.66, the Dollar Index is sinking once again, presumably to the 81.53 target or lower. _______ FURTHER UPDATE (11:12 a.m. EDT):  81.33 hit on the relapse and is holding, albeit precariously.