The One Level to Track for an Accelerating Dollar

From the Desk of Ian Culley @IanCulley

"Can’t Stop, Won’t Stop."

Bloomberg Businessweek plastered that message across its cover in October 2022 – a blaring yellow dollar sign front and center.

Those days are far behind us. The US dollar is trading well below its 2022 peak, and the mainstream media is expressing little concern about its rise.

Yet a series of fresh $DXY highs are causing many investors to fret.

I don’t blame them.

Check out the US Dollar Index completing a three-month bullish reversal:

The DXY has risen more than 4% so far this year and shows no signs of slowing. I can easily see it running back to 107. 

But it's also approaching a logical level to slam on the brakes. Or – heaven forbid – it could reverse course.

Check out the critical retracement level at approximately 105.50:

That’s the level. It's acted as resistance for more than a year (aside from last summer’s rally).

A break above that key level brings the 107 and potentially the 109 level into focus. 

Given the strong negative correlation between the USD and equities (dollar up, stocks down), dollar strength signifies a legitimate fear for stock market bulls. 

If the DXY is ripping toward last year’s high, you better believe global equities are getting the ol’ rug pull. (Plus, last week’s trade ideas will trigger.) 

Yet major US stocks seem unphased by the rising dollar – at least not at the index level. Perhaps King Dollar is simply testing our resolve, trying to make us flinch. 

So far, it’s hurling nothing more than idle threats. That will remain the case as long as the DXY trades below 105.50.

On the other hand, a breach of that crucial level will send investors ducking for cover.

Are you prepared?

Stay tuned.

Let me know what you think. I love hearing from you!

And be sure to download this week’s Currency Report!