From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Commodities and cyclical assets have remained resilient, defying headwinds from the US dollar for nearly a year. 

But the US Dollar Index $DXY is sliding lower as evidence mounts in favor of further weakness…

Could those headwinds soon fade away?

Today, we’re going to highlight some critical developments and discuss what they mean for the US dollar, stocks, and commodities in the weeks and months ahead.

Let’s dive in!

First is a chart of the US Dollar Index $DXY:

Its inability to hold above the November 2021 highs screams "failed breakout!"

After undercutting these former highs on Monday, we saw some downside follow-through on Tuesday. Two data points supporting a bearish resolution are commitment of traders (COT) positioning and momentum.

In the middle pane, we’ve highlighted commercial hedgers holding a stretched net short position...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Risk assets are on the ropes after taking a series of heavy hits last week.

Equities have been a sea of red across the board as selling pressure broadens out. Growth continues to collapse, and even many of the latest leadership groups –  like banks – are failing to hold their breakouts.

When we look inside the stock market, there's certainly a bear market feel to the price action in recent weeks. For example, offensive areas are being sold indiscriminately while defensive sectors make new relative highs. 

But when we look outside the stock market, the story is very different. Despite the volatility, we’re still not seeing much of a bid in traditional safe-haven assets.

In today’s post, we’ll focus on the Japanese yen. But it’s the same story for gold and Treasuries.

Here is a look at all three. From top to bottom, this is the Gold ETF $GLD, the US Treasuries ETF $IEF, and the Japanese yen $JPY:

...

As we progress into Q4 of Fiscal Year 2021-2022, this playbook outlines our thoughts on every asset class and our plan to profit.

This playbook will cover our macro view, touching on Equities, Commodities, Currencies, and Rates, as well as outline our views on the major nifty indices and the sector/thematic indices.

We also cover individual stocks we want to be buying to take advantage of the themes discussed in the playbook.

This is the video recording of the January 2022 Mid-month Conference Call.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

What started out as a potential bullish continuation pattern in the US Dollar Index $DXY has turned into a near-term top.

After weeks of failing to hold breakouts on an individual currency basis, the tight coil in the DXY finally resolved lower.

The brief reprieve in USD strength was immediately felt across markets last week, with cyclical/value stocks and procyclical commodities catching an aggressive bid.

Now that the headwinds associated with dollar strength appear to be easing, will risk assets enjoy a tailwind in the form of sustained USD weakness?

Or was this just the latest fake-out from the DXY?

Let’s take a look at a couple of charts and highlight the levels we're watching in the coming weeks and months.

First up is the US Dollar Index:

After the...

This is our ASC Research Q1 2022 Playbook.

With the current market environment giving us many mixed messages, what better time to dive in and see what's happening underneath the surface?

• Stocks (International & U.S.)
• U.S. Sectors & Industries
• Market Breadth & Sentiment
• Commodities
• Currencies
• Intermarket Analysis
• Crypto Currencies
• New Trade Ideas
• Overall Strategy

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

There's been a subtle risk-on tone in recent weeks. With each passing day, it's been spreading to more and more markets and charts.

Rates are rising around the globe. The underlying uptrend in commodities is intact and looks ready for another up leg. Our equal-weight commodity index is resolving higher from its current range. And cyclical stocks such as energy and financials are breaking out to new highs.

All of these events speak to a growing risk appetite and support higher prices for risk assets.

Although, two areas where we aren't seeing such clear evidence that risk-seeking behavior is re-entering the market would be currencies and our intermarket ratios.

The AUD/JPY cross is still stuck within a range. High-yield bonds $HYG relative to their safer alternatives -- US Treasuries $IEI -- failed to hold their recent highs. And the copper/gold ratio is a hot mess.

We would expect to see decisive upside resolutions from these charts if investors are positioning for another leg higher...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The rally in the US Dollar Index $DXY is stalling out.

With each passing day, dollar internals are weakening, and the prospect of a bullish resolution from the current continuation pattern in DXY is diminishing. We expect these patterns to resolve quickly. And when they don’t, that’s information.

Some other things worth noting are that commercial hedgers hold a large short position in DXY futures and the near-term bearish trend for individual dollar crosses is expanding (up 20% from last week to a staggering 80%).

The bottom line is evidence continues to stack against the USD.

With that as our backdrop, let’s check in on a long USD trade that was triggered in November and outline how we want to navigate the coming days and weeks.

Toward the end of the year, we covered a couple of key levels that the dollar needed to clear to increase our conviction in its current...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

As 2022 approaches, the latest evidence from currency markets suggest the US Dollar Index $DXY could be stalling out.

Whether it resolves higher from the current continuation pattern is a key question with broad market implications. While dollar strength has been a headwind during the second half of 2021, we think it cools off coming into 2022.

In our view, there's a good chance a weaker dollar will actually help put a bid in risk assets in the near future. This hasn’t been the case in a while, so let’s discuss what’s changed to make us feel this way.

Notice the short-term weakness in our US dollar trend summary table:

The percentage of short-term bearish readings has jumped from 13.37 to 60.00 over the past two weeks. This tells us there's been a significant drop-off in the dollar’s strength versus its peers, even as the DXY coils in a tight bull flag.

Bulls want to see the dollar get stronger beneath the surface to support a resolution...

It's always fun having Paul Ciana on the podcast. You guys familiar with the show have already heard some our conversations over the years. They're always insightful, and he always gets me thinking.

While here at Allstarcharts.com we approach the world through the lens of an equities investor, and use other asset classes as a supplement, Paul does the exact opposite. His days both begin and end with the study of fixed-income markets, commodities, and currencies. Paul is the Chief Global FICC Technical Strategist at Bank of America.

In this episode, we dive right into it starting with the US dollar, gold, crude oil, and the most important currency crosses for stock market investors to focus on.

We covered a lot in a very short period. Interested in where rates are going? We cover it. Lumber? Yup! Agriculture? Definitely. Precious metals? How could we not?

You won't want to miss this one!

Enjoy...