The End of the Declining Dollar?

The rally in asset classes across the world has been underpinned by a falling dollar. The resumption in risk appetites has been reflected in a falling dollar and a rally in other asset classes like commodities and equities. So today, I will try to see where the Dollar Index is headed just on the basis of its chart.

For one, the Dollar Index has made a double bottom when one compares the June 2009 and July 2009 lows. This bottom that I am referring to is also a 61.8% retracement of the entire rally from March 2008 to March 2009. Thirdly, there is a very strong positive divergence in the daily RSI and price followed through yesterday. Finally, the weekly chart reveals that the fall in the Dollar from March 2009 did not cause the RSI to be oversold. It is as if this fall is just a correction to the overall uptrend that started in March 2008.

If all this is true, then we could be in some trouble. I am now really reaching here. What I am essentially saying is that if my reading of the Dollar Index chart is correct then the Dollar will rally past 81 to around 84 at least. And if this happens, then equities and commodities will have to fall because until now this year's rally in equities and commodities has coincided with a fall in the dollar. The fallacy in this argument is that one is extrapolating only the recent past. May be equities and commodities can rally with a rally in the dollar too. It has happened in the past and can happen in the future.

Yesterday was a bad day for the Indian markets. The rumors of China limiting their lending led to a sharp crack in Chinese markets and India fell in sympathy (At least that is what I hear). I cut my long positions on the break of 4525 and then held on to the small short positions that I took. My feeling now is that it is best to wait for the high to be taken out (4610) before attempting any further long positions.

Ok, Times of India has a news story saying that Schumacher will replace Massa for the rest of the season. So first part of yesterdays hope has come true. Now to wait and see whether he actually wins one race. That would really be the icing on the cake.

From today onwards, just for my pleasure, I intend to add my calls on some stocks in India and some important world indices to this note.

RIL: Neutral: Buy if it crosses 2000 for a target of 2300.

ICICI Bank: Neutral: buy if it crosses 745 for a target of 840.

Infosys: Currently Long: Cut longs and go short if it breaks 1890.

HSI: Neutral: Go long only above 20680.

HSCEI: Neutral: Go long only above 12460.

KM1 Index: Long: Sell only below 193.

NZ1 Index: Neutral: Buy only above 4610.

Hey these calls on stocks and indices look so ridiculous. Such clarity in talking about inherently volatile and therefore unpredictable entities. But then experts on TV make equally strong statements as if they can actually visualise the future. So I can be excused, can't I?