Dollar & Commodity Index Under Pressure

Both the Dollar Index (DXY) and the Commodity Index (CRB) are approaching critical technical inflection points. However, it is the position of the CRB (lower chart) that is of most concern.

Let's notice that the CRB has been under pressure for the last three weeks and appears to have decisively violated its 3-year support line en route to a retest of its Q4, 2011 Double Bottom at 292-293. This level must contain forthcoming weakness to avert downside follow-through towards the 250-247 target area, a 15% decline that could reflect a global economic slowdown with deflationary implications.

The fact that the DXY recently failed to hurdle important multi-year resistance and now is treading just above its medium term support line at 79.20 (upper chart) hints to us that perhaps the Dollar Index is about to weaken dramatically to cushion or to contain a downward spiral in commodity prices. The current juxtaposition of the DXY and the CRB Indices also suggests or implies that more QE likely will be forthcoming sooner rather than later.

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