The flip side of the commodity rally has been the decline in the US Dollar, which has declined a bit over 12% from its March high (based on the Dollar Index, DXY) .A major reason given for this correlation has been the idea that non-US investors have been buying various commodities in lieu of investing in dollar denominated financial assets.Today there seems to be a disconnect of sorts, as the soybeans and crude oil both made new 2009 highs today.At the same time, the Dollar Index has held in well, remaining well above the low of 2009 low of 78.375 and Fibonacci retracement support at 79.188.Which is going to win?

Looking at the daily chart of the Dollar Index futures, yesterday’s rally saw some followthrough overnight that tested broken support at 79.905. This rally failed, as did a break that tested Fibonacci support at 79.188.After these two moves the Dollar has moved to roughly unchanged as trader wait for tomorrow’s US NFP report tomorrow morning.A close around here would leave a doji and sufficient range contraction to have a breakout setup for tomorrow, which makes sense given the significance of tomorrow’s report.

For tomorrow, momentum has risen to short sale levels. I drew arrows to the past two peaks of the MACD (blue) line; note that the previous two times it rallied above the signal line (red) it led to a sharp selloff. I try to avoid having a directional bias on a breakout day, but I’ll be alert to what appears to be the start of a downside breakout tomorrow. The first target for a selloff would be Monday’s low of 78.375.On the upside, today’s high at 80.000 would be a potential breakout point; a close over there might be enough to start to turn the trend to neutral.

Yep, it's a downtrend.

Yep, it’s a downtrend.

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