It seems nothing can stop the US Dollar. Since its low in April it has closed higher in four out of five months and is up almost 8.00% since then. While a run like that is in need of a rest there are some big issues that need to be considered now.

DXY broke out of a six-year triangle this month. Breaking to the upside from a triangle is bullish. That triangle is essentially a six-year base and should give DXY some serious “legs” for the future.

As the world’s most important commodities are priced in US Dollars, a higher Dollar means lower commodity prices; deflation. Note in the chart below how both equities and commodities trended higher during the inflationary period associated with a falling Dollar. Note also the “Goldilocks” period while DXY has been forming its base. Even commodities, which took a big hit in 2008, have essentially gone sideways since then.

The Dollar breakout is warning of an end to the bull market in equities and renewed bear market in commodities.

Click on Chart for Larger Image

About Ed Carlson:

He is the author of George Lindsay and the Art of Technical Analysis, and his new book,George Lindsay’s An Aid to Timing is an independent trader, consultant, and Chartered Market Technician (CMT) based in Seattle. Carlson manages the website Seattle Technical Advisors.com, where he publishes daily and weekly commentary. He spent twenty years as a stockbroker and holds an M.B.A. from Wichita State University.