Start Looking for a Lower Dollar Index
Martin Pring, Chairman and Investment Strategist of Pring Turner Capital Group, sub-advisor of the AdvisorShares Pring Turner Business Cycle ETF (DBIZ), lends analysis from his renowned Intermarket Review newsletter (October 2013 edition).Source: Martin Pring’s Intermarket Review
This chart shows that the Dollar Index crossed below its 12-month MA and 2-year up trendline in September. The momentum indicator in the bottom panel (the RSI), also violated a similar line, but this one is longer and therefore more significant. The chart shows that previous double trendline (Index/RSI) breaks have been valid as they all resulted in important trend reversal signals in both directions.
Our Global Bond Confidence Indicator (GBCI) acts as a check on the Index and is calculated by dividing a weighted measure of German, Japanese and US government futures by an index constructed from a broad base of international bonds. A falling ratio indicates growing confidence as investors lower their standards and reach for the higher yields provided by questionable sovereign and corporate debt and vice versa. Since the GBCI moves up and down with the Dollar Index it underpins the observation that during the period covered by the chart the dollar has been a safety haven. Note that the GBCI has confirmed the Dollar Index trendline violation with one of its own. Once again we can see that previous trendline breaks were followed by valid Dollar Index reversals.
Two things can be concluded from this action. First it is highly likely that the Dollar Index will decline, and most probably test the lower dashed brown trendline. Second, if that line is penetrated a new secular low will likely be seen. If the analysis proves to be correct the likely outcome will be upward pressure on commodities and a sector rotation to earnings driven issues.