One chart setup that we need to watch closely in the coming hours and days is the comparison of the dollar and commodity indexes, as their directional price implications could have a major impact on a cross-section of markets.

Let's notice that the recent up-leg in the Dollar Index (DXY), which peaked at 81.78 on Jan 13, ended amidst a series of daily RSI momentum divergences that warn us that the U.S. Dollar could be in the early stages of a significant period of weakness. A sustained break of 79.50 will trigger initial signals that such a move is unfolding, which should have a positive impact on the commodity index.

A sustained climb in the Reuters/Jefferies CRB Index above 314.55 will be our first indication that the commodity index is breaking above its May-January resistance line. This also will constitute a breakout from a nearer-term Oct-Jan basing formation that projects to 335-340 initially.

 

Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com.