US Dollar Finally Bottoming?

So it would appear.

Much like with the contrary (bullish) view on Treasury bonds (negative view on yields) last December to March, I’ve been nursing Uncle Buck along on a contrary bullish view while holding the Euro short (and still at a paper loss). But ever plucky, the view has had to remain the same as long as big picture support remains intact, which it does.

dxy monthly

And here’s the daily view showing that the harsh downtrend that began in June has been broken. Now, a break of a downtrend line (they all break sooner or later) does not a rally make, but it’s a start; and Unc could be putting in a tiny little ‘W’ bottom. If RSI makes a new high above the June high, I’d say he’s on his way. A bounce target? How about resistance at 98-99?

dxy daily

Meanwhile, the stock market can carry on against a strong USD, as it did in 2014. But I’d continue to question for how long, because the market projected a Trump ‘reflation’ (which would of course feature a weakened USD) based on fiscal policy, which has been tardy at best and a non-starter at worst.

As for the gold sector, it’s sneaky; I’ll say that for it. It was sneaky bearish during USD’s decline but it was also sneaky in the bullish out performance of several of its quality leaders. So one message of this chart is that the miners need not get whacked to the degree – if at all – that the stock market may as we get into September and Q4 (although one might also put forth a view that this highly sensitive sector has been negatively diverging in anticipation of a dollar rally and could still get whacked).

usd, spx, hui

Either way, I am not near projecting the end of the line (and bull market) for stocks. Just the end of this particular line, which has seen US and many global stocks feast off of the bearish US dollar, AKA the world’s counter-party. Later on, if politicians are able to successfully compromise the currency in fact instead of just in words and intentions, maybe we’ll get that fiscally stimulated ‘reflation’. But that’s a story for another day.

A good target for stocks, if the intermediate view is correct, would be around 2100 on the SPX and an even better one might be around 1900. The bull market would be broken below 1800.

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