USD Index - Daily Chart For The US Dollar Index 18th August 2009

Yesterday’s gapped up opening in the USD Index provided further encouragement to dollar bulls, but they have an awfully long way to travel before we can even begin to suggest there has been a sea change in sentiment towards the US Dollar.  This is despite a 6% fall in the Shanghai Composite and almost a 2.5% fall in the S&P500.  In addition the Baltic Dry Index recently posted the biggest fall since the start of the financial crisis falling 17% during the first week of August.  This index is generally viewed as a leading indicator, in particular for commodity prices, and therefore a broad measure of global economic demand which in turn impacts on consumer prices and therefore inflation – which should all be pointing to a much stronger US Dollar.  Although technically yesterday’s up bar ended the session on a positive note, but worringly the index found resistance at two levels.  Firstly the 40 day moving average seemed to provide a barrier to any move higher and secondly the strong resistance immediately ahead in the 79.50 – 81.0 band also came into play.  For any sustained move higher by the index we need to see a breach of this range with a break and hold above the 81.50 price handle coupled with support from all three moving averages.  In the short term it is interesting to note that the 9 day moving average has now crossed the 14 day moving average giving us a bullish signal, but the fact remains that the consolidation resistance outlined above must be conquered with force and momentum before any sustained move higher can be established in the medium term.

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