Could a reversal of the US Dollar spell an end to this year’s stock market rally?
The US Dollar has been weakening ever since it made its last highs at the end of January. The stock market made lows at the end of January and has been rallying ever since.
What follows is a big picture look at the position of the US Dollar and what the near-term price action there might mean for stocks.
From the chart below, if you look at the highs of 2015, you’ll see that they were made within a zone of resistance defined by the high-volume area established 13 years ago in 2003. If you look at the recent low, you can see it is a second retest of the late 2005 high following the breakout in late 2014.
Click here to watch a video explaining how to read markets using volume at price.
The US Dollar has reached the bottom of its 15-month range and may be reversing back to the upside. A move above the April highs at 95.210 would confirm further upside ahead. A sharp rally in the US Dollar would likely put pressure on the stock market in the near-term.
If the US Dollar does not hold support but instead breaks below 92.630, it would confirm that the weakness so far this year is not just another rotation back to the bottom of the year-long range but instead that a larger leg lower has begun. In this scenario, the breakdown could provide further upside fuel for the stock market.
