Eye on Dollar vs Commodity Index

One chart set-up 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-Jan resistance line. This also will constitute a breakout from a nearer-term Oct-Jan basing formation that projects to 335-340 initially.