It seems nothing can stop the U.S. 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.
