Dollar Closing In On Double Bottom As S&P Consolidates

A few days ago I discussed how the failure to come to an agreement regarding the debt ceiling was bad for both the dollar and the market and that the two may lose some of the negative correlation that they have had for some time. The dollar has sold sharply off of the highs of the month and the market has pulled back off of the recent move up and has made a lower high. I think that a pullback is necessary for the market here if it is going to rally after the debt ceiling announcement as there needs to be some doubts as to whether or not it will happen, otherwise the trade will be one-sided.

Once again, 1345 has proved to be a perfect level of resistance for the market. The S&P lost five and a half points today and it is closing in on the 20 MA. I think the 20 MA will be pierced shortly but I do not think that the market gets below 1320 before making another move higher. That would make for a higher low and a higher high leading into the debt ceiling negotiation, should there not be one before then. In any case, the pattern over the last six days is a bull flag and should play out by early next week.

The dollar is closing in on double bottom territory and may get there within the next 4-5 trading sessions. At this point, UUP is so close to $20.84 that it isn’t going to take much to get it there. Remember that a default would equal less spending which would be positive for the dollar, but it ultimately has catastrophic repercussions and is the reason why the dollar is falling and gold is still surging. Note that other currencies aren’t doing all that well either, so the effects of a US default are extended to the rest of the world and in many countries, the outcome for them would be worse than the outcome here.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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