The EURUSD cross rate has been bouncing around its weekly key pivot point
for several weeks now. See figure 1, a weekly chart of the EURUSD.
Figure 1. EURUSD/ weekly
Key pivot points are identified with the large black dots over the price bars.
These are areas of support and resistance. The most recent pivot comes in at
1.35447; a weekly close over this level suggests that Euro will gain strength
against the Dollar or the Dollar weakens against the Euro. This has yet to
happen although the Euro has been probing higher.
Why is this chart important? Weakness in the Dollar continues to imply
higher prices for risk assets, such as equities and commodities. The Dollar
remains negatively correlated to equities. I believe it is that simple. Recent
Dollar weakness has been highly correlated with equity strength. See figure
2 a daily chart comparing the Power Shares DB US Dollar Bull (symbol:UUP) (blue
line) to the S&P Depository Receipts (symbol: SPY) (black line). The red
vertical lines identify peaks and troughs in the UUP and these coincide nicely
(and inversely) with swings in the SPY.
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