Big Day for the Dollar
There's no way to deny the importance of today's surge in the U.S. Dollar index. After staging a surprise rally in the first half of 2005, the Greenback has been struggling for over four months at the 90 level, but today's surge through 91 suggests that battle with that resistance has been won by the Dollar bulls, especially if the index can close above that level.
In the 3-year chart of the Dollar index below, one can easily see the resistance that the 88-90 level has posed, resistance that formed through the large portion of 2004:
I myself even wrote a commentary in July titled "Commodity Currencies to be Less Exciting in Second Half" based in part on this very visible level of resistance; in retrospect, I should have suggested that currencies would be less than inspiring for most of the 2nd half since today's action suggests another up-leg for the Dollar is likely upon us.
Typically, a technical breakout like this one would lead me to believe that we'd see that asset spurt quickly higher, then perhaps pullback to the breakout level, consolidating the quick surge in preparation for a more sustained move higher. This year, however, has been murder on breakout traders, with such spikes often acting as points of exhaustion so a furious, ultra-short term move into the mid-90's may not materialize. However, the longer-term plus for Dollar bulls is that the very resistance level that posed such a challenge recently should now act as powerful support, acting to contain any pullbacks in our currency from here.
Upon its first failure at the 90 level this Summer, the most vociferous Dollar perma-bears were quick to declare the Dollar's "counter-rally" dead based on the charts (though most aren't technicians, they'll point to charts as evidence when an obvious pattern emerges that they feel verifies their thinking). This move, however, will be much harder to explain away based on the charts. I also suspect that it's going to become increasingly difficult for the most vocal anti-Dollar extremists to sell their "Dollar collapse' and "end of American empire' nonsense as we head into 2006.