Monday, June 21, 2021

#Dollar Index Review $UUP $UDX

US Dollar Review

Those that view the message of the market on a daily basis are likely confused by trading noise. While trading noise contributes to long-term trends, it does not define them. The focus on short-term noise rather than trends, a source of confusion for the majority of investors, leads to the creation of bag holders at major trend transitions.

The US Dollar Index's overall trend, revealed by trends of price, leverage, and time, are defined in The Matrix for subscribers.

Subscriber Comments

The DXY rally is rather puzzling and why i write. The energy build I read as bearish (but daily trend up) and you mention to check the MCC, where I see DI DI2 -3% and 0%. In your comments you state early to the set up. Do you mean early to USD rally and it will continue to go up? if so I do not follow how to arrive at that conclusion with the date given.

thank you in advance

Kind Regards


A lot of people were surprised by the dollar rally. Followers of the invisible hand should not have been.

The US Dollar Index contract is often early, because open interest is relatively low. Low open interest increases volatility. Volatility generates faster bearish and bullish setups than deeper markets. The 2010 top in the US dollar index, for example, shows DI and DI2 pushing below -60% for many months before the rally halted. DI2 reached -82% in 2010. The early bearish setup punished the bears in 2010. I keep reminding everyone that the Dollar Index's DI2 is only -40% in 2021.

The Major Currencies DI, a deeper, equal-weighted Dollar Index, helps us better understand the unwinding process. The dollar will likely rally until the MCC DI unwinds to lower levels (see previous US Dollar Review for further discussion).

The dollar is a complex asset, highly intertwined and connected with other markets such as bonds, gold, silver, commodities, and so on. The bond market, for example, is a dollar proxy that pays interest. Gold and silver, two highly recognizable assets across the world, are sensitive to the dollar due to relatively stable supply. The Bond and Precious Metals Composite DI trends, trends that compliment the Major Currencies Composite DI, also warned and continues to warn traders about chasing the "dollar is dead" or bearish story. Rising bond price (from high DIs > 60%) and falling gold and silver prices (from low DIs < -60%) often foreshadow or coincide with dollar rallies of varying magnitudes. We must track all these markets simultaneously.

Let's not forget confidence (line 103 Trends Tab Matrix). Bear phases in confidence increase volatility of all assets. Risk off generates rallies and gold, silver, and the US dollar. The three could rally together as we approach the implosion point. Please remember, the dollar will be challenged last, not first. The dollar still enjoys safe haven status during periods of rising uncertainty. Investors are caught of guard, because they believe the Euro, British Pound, Australian Dollar, and other significantly periphery currencies are safer than the dollar? The world returns to the core economy during times of stress. It's still the US, but that designation is not infinite.

Bond Composite DI (line 62 Trends Tab)

Precious Metals DI (line 63 Trends Tab)

The US Dollar Index's primary trend has been down for 12 months and 2% profit. The dollar's energy build has been bullish for the vast majority of this impulse. The large build has prevented the composite trend from organizing, thus, keeping the impulse relatively unprofitable. Profitable impulses often require energy builds that support the direction of the breakout. The dollar has yet to see it, so patience is required.

Follow me on Twitter or Facebook for further discussion.


Market-driven money flow, trend, and intermarket analysis is provided by an Access Key.