The December Dollar Index is up 10.5 ticks at 76.385 this morning as I write. The enclosed chart shows that the dollar has begun a small correction off its lows over the three or four trading days. Despite the sharp corrections occurring in most commodities right now, because, they say, the dollar is rallying; this rally in the dollar is not very impressive at all so far. So, that tells me that commodities such as gold and silver had entirely too many small speculators involved for those prices to continue to rise. So some house cleaning is in order. That means that gold and silver are in the process of scaring the small guys out of the market before they can continue on with their long term up moves. The dollar is in the same position. There are just too many dollar bears out there, so the market needs to correct a little to create some doubt in the minds of those late arriving dollar bears. Business TV channels sure are spending a lot of air time discussing whether the dollar has bottomed or not. The good thing about this is that it creates doubt in the minds of the dollar bears and may cause some short covering. The reality, so far, is that the dollar has hardly lifted very far at all.

The long term trend is still down for the dollar. The directional movement indicators are now right on top of each other threatening to turn bullish and the ADX line is declining. If the directional indicators turn bullish, I will see what all my other indicators are saying, and if they all are lining up bullish, then I will consider going long the dollar despite what I may fundamentally believe. The chart rules. If those other indicators disagree then I will stand aside and continue to look for a place to short the dollar. Stay tuned.

Oct. 28, 2009
David Hall