QE3 Weighs on the US Dollar

The enclosed charts of the Dollar Index (DXY) and the Commodity Index (CRB) began anticipating coordinated stimulus from the Eurozone and from Fed Bernanke back in early August, as the DXY started to weaken, which triggered a positive reaction from the CRB.

In particular, though, the DXY breakdown occurred immediately following a massive upside failure to follow though above a 3-year resistance plateau (81.50).

In addition, the weakness, after the upside failure at 84.10, declined beneath the DXY 1-year support line, also at 81.50, which triggered a near-vertical decline that no doubt was precipitated by the announced new QE Fed plan.

This type of dramatic inversion after a failed breakout from a 3- year base-like pattern usually reverses price polarity in an equally powerful way.

In other words, the DXY likely is heading for its May-Aug 2011 lows in a hurry.

The mirror-image CRB Index should climb accordingly. A double-whammy inflationary shock appears to be unfolding.