The recent U.S. Dollar Index rally is providing a headwind for commodities, while pushing other currencies down.
Should the rally extend further, it may create a bigger disturbance in the financial markets – perhaps even extending to equities.
Today’s chart of the U.S. Dollar Index takes a long-term monthly view highlights why King Dollar may be nearing an important inflection point.
As you can see, the U.S. dollar has spent most of the past 25 years inside of a falling channel marked by each (1). On the other hand, the dollar has also spent most of the past 10 years inside a rising channel marked by each (2). These two trends are converging.
More recently, King Dollar double bottomed at (3). The ensuing rally has taken it up toward its long-term falling trend line at (4).
Something has to give soon. Will it be a breakout higher and the trend change? Or, will it turn back lower? In my humble opinion, what happens to King Dollar at (4) looks quite important. Stay tuned.