Dollar Index to struggle during equity advance

The long-term fate of the dollar continues to perplex, recent analyst chatter arguing central banks need to make a permanent shift to a basket system more closely linked to trade patterns in the absence of any credible alternative to the dollar - the closest the market gets to consign the greenback to the dustbin. Looking at the dollar index on the daily chart there still looks little in the way of support, underlined by the slump we’ve seen this week – DXY down from just shy of 76.00 back to 74.31 at the time of writing.  From here there is some minor trend support at 74.08~ but really the June low at 73.506 is the first decent level.  Things look a little more constructive on the weekly chart but again we’re not that far from key support, 72.80 the line in the sand here.

The risk remains that we see another wave down which would take the dollar index to new lows (sub 70.00) and only a sustained break back above 76.35 would suggest that we can see anything more than a multi-day bounce.  The bad news is if this does occur it seems probable that our call for a sustained pick up in equity markets is wrong.  While trading opportunities are a little limited at this point in the range, shorts from 75.50 being our choice at the moment, we keep a close eye on how the chart develops as equity gains begin to slow.