When the US dollar index strengthened from a base level around 80 up to 100 it wreaked havoc on the earnings power or many companies. It quickly became the crutch as to why any company did not meet their earnings estimates. “We would have made $x but that got cut back due to the strong dollar”.
That story cannot go on forever. In fact the US dollar Index has been moving sideways for over a year around a mean of about 95. So US dollars are still relatively expensive, but you have had 15 months to figure out and adjust how to deal with that. And the future looks like more of the same.
The chart above shows the move up to 100 in the Index. It also shows that it has retraced that move by 38.2% twice, forming the range. The latest bounce gained new strength Wednesday after the Fed minutes were released. This resulted in the dollar index breaking short term resistance at 95 and continuing higher. Momentum indicators also strengthened. The RSI moved up into the bullish range and the MACD, which was already crossed up and rising, moved into positive territory.
The next series of tests to the upside start today. There has been falling trend resistance that extends to the current early Thursday Index level. And then the 200 day SMA above at 96.66. If the dollar index continues above both then a retest of the high level in the range seems very likely. At that point we will see if companies are dropping dimes or screaming headwinds.
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