What the dollar decline giveth, a dollar rally can taketh away.

The dollar has fallen more than 7% over the past three months. That’s an enormous move for a currency – especially for the world’s “reserve” currency.

In fact… it’s a crash.

It’s a crash that has helped to support the price of so many other financial assets. That’s because, as the dollar falls, folks exchange their savings for other assets. They buy stocks, bonds, metals, commodities, cryptocurrencies, and just about anything else.

Just think about the action of all those assets over the past three months as the dollar has fallen. Stocks are up sharply. Treasury, corporate, and high-yield bonds have all rallied. Gold, silver, and copper have exploded higher. Bitcoin is higher than it has been in over a year. Agricultural commodity prices are breaking out to the upside.

And, much of that action is due to the falling dollar.

That means traders should keep an eye out for signs that the dollar collapse may be ending. Because when the dollar starts to rally, there’s a good chance the prices of other assets will start to fall.

Based on the look of the following chart, we may be approaching that moment…

This is a chart of the Invesco DB U.S. Dollar Bullish Index Fund (UUP). It’s an exchange-traded fund (ETF) that tracks the price of the U.S. dollar.

You can see the dramatic decline over the past few months. And, you can see that while UUP was falling, all of the technical momentum indicators at the bottom of the chart were falling right along with it. That’s a sign that the downtrend was strong, intact, and likely to continue.

Recently though, on the decline to new lows over the past week, the technical indicators made higher lows. This is a sign that the downward momentum is fading. The decline is not as strong as it once was.

This sort of “positive divergence” in the technical indicators is often an early warning sign that the trend is ready to change direction. In the dollar’s case, that means we may be nearing a point where the decline ends and a new rally begins.

And, since the decline in the dollar has helped support the prices of so many other assets, a dollar rally may just have the opposite effect.

Best regards and good trading,

Jeff Clark
Editor, Market Minute