From Nic Lenoir of ICAP
I have been constructive on the dollar index for a little while. I had drawn attention a few weeks back when we broke the 60-dma as it has been an excellent envelope since 2008 for the price action bullish or bearish. My thinking was that one should try buying on a retest. Sure enough we almost saw tick-for-tick the moving average on Friday (at a time when most certainly very few bought).
What now? Well one cannot ignore that from the lows of early November to the local highs of November 30 the wave pattern looks like a corrective a-b-c in a generally bearish trend. However as you know looking at the chart bigger picture I believe 2008 marked the lows and we are about to embark on a major bullish move. If that were the case one could view the USD strength of November as bullish waves piling ahead of a larger wave 3) up. To support that argument it is interesting to note that the low of Friday also corresponded to the 76.4% retracement of the November move. From here if 80.85 is bypassed the bullish trend will be confirmed and we will go through the 200-dma towards 95 at the minimum. Conversely, you now have the luxury to set a stop at entry level, and people who hate the USD or want to get short tactically can sell if we take out Friday's lows as the market should go down to at least 77.80.
A strong DXY would be in contradiction with equity strength according to historical correlations, but let's not forget despite today's euphoria that strength at the start of the year following a year-end rally has proven to be a major headfake in the past few years... food for thought!