US Dollar/S&P-Oil-Gold Relationship Watch, UUP RSI and ADX Indicators - Technical Update

Technical Update on USD Relationships 10/17/2010: As mentioned previously on 9/28, the $USD inverse relationship trade (US Dollar/S&P-Oil-Gold) has been working during the past month and a half (chart 1). UBS's Art Cashin mentioned this relationship on King World News on Friday. So lets look at the charts. The US Dollar Index ( $USD) looks like it's due for a reversal in the short term and could possibly test that downtrend line using the two lower highs from June and September (chart 2, 3). RSI (relative strength) looks oversold and the MACD (moving average convergence-divergence) indicator could cross to the upside. The MACD is still below the mid-line though which still confirms overall downside momentum and the 50/200DMA death-cross is still in play. Watch the multiple downtrend lines. Volume increased on the rally on Friday.

If the US Dollar rallies here it could correct the massive moves in hard assets and equities. If the relationship still prevails that is. Watch the charts next week. $USD is testing a rising trend from the 2008 and 2009 lows but not floor support. $UUP (US Dollar Index ETF), on the other hand, is testing the lows. UUP recently printed a low of 22.21 and the 2008 and 2009 lows are at 22.08 and 22.03 respectively. Also note that UUP's RSI is the lowest it's been in 3 years and the ADX indicator is the highest it's been in 3 years (chart 4). The ADX or Average Directional Index "assesses the strength of the current trend" - chart school.

On a longer term basis, I want to see how the $USD structure plays out and see if the inverse relationship remains intact (look @ green and red arrows). I understand how hard it must be to hedge portfolios if these relationships decouple abruptly. Also, the Fed might want to knock down the Dollar to boost exports and create inflation. I provide quick technical analysis with trends and indicators on the US Dollar Index, $UUP and the USD/Real Asset relationship. I'll look at UUP/TLT (Treasury bond yields) this week which could affect the Dollar going forward.

$USD/$WTIC/$SPX/$GOLD (USD vs. Oil/S&P/Gold price) -

$USD (US Dollar Index) 2-year chart -

$USD (US Dollar Index) 9-month chart -

3 year chart of $UUP